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Katrin Arnold

6 October 2020
This Occasional Paper analyses how significant expansions in central banks’ mandates, roles and instruments can result in challenges to the independence of monetary policy. The paper reviews, in particular, some of the key challenges to central bank independence brought about by the global financial crisis (GFC) of 2007 and assesses their impact on the de jure and de facto independence of selected central banks around the world in the past few years. It finds that although the level of de jure (legal) central bank independence did not deteriorate, the level of de facto (actual) independence of the central banks of some of the largest economies in the world may have weakened. The paper presents counterarguments to the key critiques raised against central banks due to their policy response during the GFC, and concludes that the case for central bank independence is as strong as ever.
JEL Code
B1 : History of Economic Thought, Methodology, and Heterodox Approaches→History of Economic Thought through 1925
B2 : History of Economic Thought, Methodology, and Heterodox Approaches→History of Economic Thought since 1925
C4 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics
E3 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles
E4 : Macroeconomics and Monetary Economics→Money and Interest Rates
E5 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit
E6 : Macroeconomics and Monetary Economics→Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
K3 : Law and Economics→Other Substantive Areas of Law
N1 : Economic History→Macroeconomics and Monetary Economics, Industrial Structure, Growth, Fluctuations
N2 : Economic History→Financial Markets and Institutions