Abstract

PEREZ CALDENTEY, Esteban. A critical essay on the independence/autonomy of the central bank according to the dominant paradigm. Inv. Econ [online]. 2020, vol.79, n.311, pp.54-82.  Epub Apr 21, 2020. ISSN 0185-1667.  https://doi.org/10.22201/fe.01851667p.2020.311.72436.

The independence of the central bank refers to political independence and operational independence to achieve and maintain price stability. Political independence was justified on the basis that it was not possible to exploit the existence of a trade-off in a world with rational agents. Attempts to do so led to a problem of intertemporal inconsistency in economic policy. Moreover, the rational expectations hypothesis significantly limited the framework of action of central bankers. Instrument independence, on the other hand, was based on explicit or implicit inflation targeting frameworks. Empirical evidence shows that the trade-off between inflation and unemployment is well and alive and that inflation declined widely in the 1990s regardless of monetary policy objectives and monetary frameworks adopted. Moreover, in the current context, there is a clear dominance of financial transmission channels and financial constraints that makes central bank independence a more complex issue.

Keywords : Political independence; operational independence; rational expectations; intertemporal inconsistency; inflation targeting; Phillips curve.

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