The Economics of Central Banking

Abstract

Since 1989, twenty-five countries in different parts of the world have upgraded the legal independence of their central banks very substantially. 2 This trend is particularly remarkable in view of the fact that, during the preceding forty years, changes in central bank (CB) legislation were relatively rare. 3 In parallel there has been a remarkable upsurge in both theoretical and empirical research on the meaning of central bank independence (CBI), its measurement, the interaction between government and the CB, the effect of CBI on the performance of the economy, the design of optimal contracts for central bankers, the functioning of nominal targets, and the deeper determinants of CBI. This chapter is a broad survey of recent developments in this rapidly growing area. It addresses central banking issues that are relevant for both developed and developing economies. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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