By Robert A. Buckle
Emeritus Professor, Victoria University of Wellington.
External Member, Reserve Bank of New Zealand Monetary Policy Committee.
Disclaimer
The views expressed in this paper are those of the author and do not necessarily reflect the views of colleagues, the Reserve Bank of New Zealand, and other members of the Reserve Bank of New Zealand Monetary Policy Committee.
Abstract
Central bank independence is an important development in macroeconomics. It has become a lynchpin of modern central banking. The period since the Global Financial Crisis and the experience of the Covid-19 pandemic era posed new challenges for central banks, with potential implications for central bank independence. This paper reviews the scope and rationale for central bank independence and the reasons it spread internationally after the 1980s. It reviews evidence of the effects of central bank independence on inflation, output volatility, financial stability and fiscal policy. The paper considers political threats and contemporary policy issues that could influence the form of central bank independence and credibility. These issues include matters relating to assessments of monetary policy during the pandemic, the scope of central bank mandates, interpretations of inflation dynamics, the funding of central bank operations, and the interaction between fiscal and monetary policy.
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