Munich Personal RePEc Archive

Why should central banks be independent?

Harashima, Taiji (2007): Why should central banks be independent?

[img]
Preview
PDF
MPRA_paper_1838.pdf

Download (348Kb) | Preview

Abstract

Most explanations for the necessity of an independent central bank rely on the time-inconsistency model and therefore assume that governments are weak, foolish, or untruthful and tend to cheat people. The model in this paper indicates, however, that an independent central bank is not necessary because governments are weak or foolish. Central banks must be independent because governments are economic Leviathans. Only by severing the link between the political will of a Leviathan government and economic activities is inflation perfectly guaranteed not to accelerate. A truly independent central bank is necessary because it severs this link.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.