Independence and Responsibility of Central Banks



Year of publication 2005
Type Article in Periodical
Magazine / Source New Perspectives on Political Economy
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords central bank; independence; responsibility
Description A strong information asymmetry may exist between central bank managers and both the public and the government. Therefore managerial discretion of the central bank managers is possible. On the other hand the government is able to constrain, or threaten it better than anyone else. For this reason the central bank can neither be fully controlled by the government, nor fully independent of it. The actual level of independence may differ from the formal one, and may not be observable. There can also be many special-interest groups in the economy that can try either to bribe or threaten the central bank managers. The strength and aims of these groups may change through the time. For this reason the generally optimal level of the central bank formal independence might not exist.

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