تجدید استقلال بانک مرکزی

In this paper, we survey the case for central bank independence (CBI). We conclude that CBI is neither necessary nor sufficient for monetary stability. CBI is just one potentially useful monetary policy design instrument among several, and CBI should not be treated as an exogenous variable. Instead, the question that should be addressed is why societies decide to make their central banks independent? The reasons why CBI is chosen are related to legal, political, and economic systems. A number of empirical studies find correlations between CBI and low inflation rates. Endogeneity of CBI suggests, however, that the correlation has no implications for causality.

Central bank independence (CBI) has become one of the central concepts in monetary theory and policy. The virtue attributed to CBI is that it contributes to attaining the objective of long-term price stability. The idea has also found confirmation in the fact that more and more countries in the OECD and beyond have made their central banks independent. The culmination of this trend is the European Central Bank (ECB) that, according to its statutes, is the most independent central bank of all. In this paper, we survey and re-evaluate the case for CBI. Compared to other surveys (see Eijffinger and de Haan, 1996 and Berger et al., 2001a), which confirm the conventional wisdom, we focus on a selection of critical papers. Our conclusion is that CBI is neither necessary nor sufficient for monetary or price stability. CBI is not necessary for achieving price stability, because CBI is just one means among several that can be employed for fulfilling this objective. CBI is at the same time not sufficient for price stability, and should not be treated as exogenous, because of the question why central banks are made independent. It follows that it is wrong to regard CBI as a cause of low inflation rates. We begin by reviewing the theoretical foundations of central bank independence. First, we summarize the models used to make the case for CBI. Then we point to serious theoretical problems with the standard argument that CBI is the optimal choice of a monetary policy design instrument. Although these problems are stated in the literature, the typical conclusion is that CBI is the best workable way to achieve low rates of inflation (see, for example, Berger et al., 2001a). We do not find this general conclusion to be justified by empirical analysis. Second, we consider alternative monetary policy design instruments that can achieve low inflation rates. We focus on fixed exchange rate and currency board arrangements, inflation targets, and central bank contracts, which have equally or more favorable theoretical properties than CBI and have been successfully implemented. At the same time, every approach comes with at least one disadvantage, and no design instrument is optimal under all conditions. Third, in a number of empirical studies, researchers found CBI to be correlated with low inflation rates. A typical policy conclusion based on this finding is that the creation of an independent central bank will bring about price stability. We argue that this conclusion is not warranted because of the endogeneity of CBI. Even if we measure the right thing and if there is strong evidence for a relationship between CBI and inflation, there is no reason to expect that this finding will be policy robust. In other words, this correlation does not indicate causality. Instead, at least two decisions determine the choice of CBI by a society. There needs to be a decision on whether price stability is a major economic policy objective. If this decision is made in the affirmative, a question follows about the appropriate choice of a monetary policy design instrument. The “true” cause underlying the empirical relationship between CBI and low inflation rates is accordingly the social choice in favor of a stability-oriented monetary system. Based on these considerations, we set out theories and empirical evidence regarding the decision to make price stability an aim of economic policy. The two main explanations are (1) the idea of an “inflation culture” in societies that opt for a stable monetary regime or (2) that interest groups are able to influence the government regarding monetary policy. Then we proceed to show under which conditions societies will choose CBI as opposed to alternative monetary policy design instruments. Here we consider three determinants: a society's legal, political, and economic systems. The conclusion summarizes the main arguments and suggests directions for further research.

In this paper, we evaluated the conventional view that CBI is a necessary and/or sufficient instrument for achieving low inflation. Our conclusion after reviewing the analytical arguments and empirical evidence is that this case is far from convincing. We focused on an alternative way of thinking about CBI that is both theoretically and empirically more plausible. The idea is that societies make two decisions about monetary policy. First, they decide on the importance attached to fighting inflation. The second decision concerns the best institutional arrangement for achieving the objective of price stability, given the political, legal, and economic framework. The first decision indicates that CBI is not a sufficient condition for price stability, as it is not the ultimate cause, but an instrument among many for achieving this objective. The second decision makes clear that CBI is not a necessary condition for price stability in general, although it may be the appropriate solution for some countries. This two-stage decision model allows interpretation in a common framework of a wide variety of findings on monetary policy and CBI that have appeared in the literature. This is not possible within the conventional framework. The first part of the paper has considered theoretical arguments concerning the case for central bank independence. We propose that there are other solutions to the time-consistency problem, such as inflation targets, fixed exchange rates, and inflation contracts, and some may be preferable to independence and conservativeness, because they involve lower costs while at the same time achieving low rates of inflation. While it is usually impossible to write complete inflation contracts, inflation targets or exchange rate-based monetary policies are practical and have been chosen as alternatives to CBI. The alternatives are often combined with instrument independence of the central bank. However, what matters in the Rogoff argument is goal independence. CBI is therefore a relevant concept in practice but it is not the only choice. Providing a clear list of conditions under which one or the other monetary policy solution is superior should rank high on a list of further research. The second part of the paper has reviewed the literature on CBI endogeneity. In particular, we identified two reasons why societies choose to assign high priority to fighting inflation. First, cultural differences allow a classification of societies according to inflation aversion. Second, political interest groups may have an interest in keeping inflation low, and may be able to influence the political outcome. Regarding the choice of CBI in comparison to other potential instruments, we have reviewed the literature that looks at political, legal, and economic aspects. For instance, higher costs of changing the legal status of central banks in terms of political difficulties can lead to adoption of CBI. Political freedom may be conducive to implementing CBI. If CBI has already been established, a “culture of law” may prevent changes to the central bank law. Finally, when labor markets are characterized by strong unions, appointing a conservative central banker as president of an independent central bank may not be the appropriate solution. On the other hand, Rogoff's (1985) result can be resurrected when labor markets are atomistic or when the outside option for unions is defined in real terms. Our two-stage framework for analyzing monetary policy arrangements has not related to informal arrangements. In a case study of France, Italy, and the UK, Cobham et al. (1999) emphasize the importance of informal CBI in the conduct of monetary policy. They show that changes in average inflation have not always been accompanied by changes in the degree of CBI and that changes in the formal degree of CBI did not always lead to the expected changes in inflation rates. Another point noted by several authors is that public support for the central bank needs to be sufficiently strong to make the implementation of (sometimes harsh) monetary policy measures successful Posen, 1995, Bofinger et al., 1998 and Hayo, 1998. Within the limited scope of this paper, however, we do not do justice to these refinements. There are several areas where further research appears to be useful. First, we believe there is more to be learned about the reasons for choosing anti-inflationary policy institutions by analyzing survey data. In particular, micro- and macro-level information can be combined in a panel data set to address a number of interesting questions. A first attempt in this direction is a study by Di Tella et al. (2001), who look at the trade-off between inflation and unemployment using a large cross-section of survey data and combine micro- and macro-series in a two-step process. Second, the empirical evidence for the interest group argument remains inconclusive. One could look at interest groups other than the financial sector. More can be learned about why societies choose CBI and not one of the other possible instruments. The existing empirical results are relatively weak. Future empirical research should take the relevant characteristics of a country's legal, political, and economic frameworks explicitly into account.