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What Has Central Bank Independence Ever Done for Us?

Summary:
Andy Haldane in this speech summarizes the views on central bank independence so far: This year has seen central bank balance sheets expand further. Global QE now stands at around trillion and is set to rise further. For some, this has blurred the distinction between monetary and fiscal policies to an even greater extent than in the past. It has also intensified the debates and concerns around central bank independence expressed at the Bank’s conference three years ago. Against that background, now is an opportune moment to ask some questions, and assemble some evidence, on the case for central bank independence. How has it affected monetary and financial stability? What challenges does it face at present? And how might it evolve in future? Those are the aims of this lecture. I

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Andy Haldane in this speech summarizes the views on central bank independence so far:

This year has seen central bank balance sheets expand further. Global QE now stands at around $17 trillion and is set to rise further. For some, this has blurred the distinction between monetary and fiscal policies to an even greater extent than in the past. It has also intensified the debates and concerns around central bank independence expressed at the Bank’s conference three years ago.

Against that background, now is an opportune moment to ask some questions, and assemble some evidence, on the case for central bank independence. How has it affected monetary and financial stability? What challenges does it face at present? And how might it evolve in future?

Those are the aims of this lecture. I start with some definitions of central bank independence, which is a multi-faceted and often misunderstood concept. I then discuss some of the theory and evidence on the role of central bank independence in supporting monetary and financial stability, as well as its links with fiscal policy. I will conclude with brief thoughts on central bank independence looking forward. As a central banker, you might expect me to extoll the virtues of central bank independence.

Spoiler alert, I will not disappoint. As best evidence can tell, central bank independence has delivered “twin-wins” for price and financial stability: low inflation and stable banks at no cost to the economy’s output or efficiency. Equally, this is a challenging time for the economy and for central banks. They will need to adapt to these new challenges to boost public understanding of, and maintain democratic legitimacy in, central banks. 

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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