Avi J. Cohen and Geoffrey C. Harcourt
Geoffrey C. Harcourt, Peter Kriesler and Joseph Halevi
The question of central-bank independence (CBI) represents a major area of disagreement between mainstream and heterodox economists. For the mainstream, the question has been long settled in favour of independence. For many economists, the advantages of an independent central bank remain far from clear. Among the reasons, the authors argue that there are implications for democracy if one of the major instruments of government policy is under the control of an unelected, unrepresentative elite. Moreover, they ask why one would assume that the motivations of central bankers are, in some way, superior to those of elected politicians. In addition, the major justification for CBI is its impact on inflation, mainly via expectations. However, the transmission channel from expectations to inflation has not been properly analysed, and may, in fact, have no impact. Finally, serious economic policy requires a mixture of all policy options, including appropriate fiscal and monetary policy. In other words, monetary policy needs to be seen as part of a general policy package, not as an independent policy tool.