A independência do banco central: Definição e justificativa

1 Introduction

Central Bank

Independence

The first two lectures deal mainly with what might be called

the staples of the theory of monetary policy as taught in

universities-classic issues such as lags and uncertainties,

the choice of monetary instrument, rules versus discretion,

and so on. In concluding this series, I want to focus on

central banking proper-viewing the central bank as an

economic and, to some extent, a political institution. The

issues for this final lecture involve economic considerations,

to be sure. But they also have philosophical, organizational,

and practical aspects that arise less frequently in economic

discourse. I begin with the idea of central bank

independence.

2 Central Bank Independence: Definition and Rationale

Everything, it seems, runs in fads. Lately, it appears, the

trend has been toward greater central bank independence.

But the term itself is somewhat vague and hasAverage Annual Inflation

11 reach for short-term gains at the expense of the future (that

is, to inflate too much) would be hard to resist. Knowing

this, many governments wisely try to depolitidze monetary

policy by, e.g., putting it in the hands of unelected technocrats

with long terms of office and insulation from the hurlyburly

of politics. The reasoning is the same as Ulysses': He

knew he would get better long-run results by tying himself

to the mast, even though he wouldn't always feel very good

about it in the short run!

Although not entirely one-sided, most empirical evidence

bears out this hypothesis, at least for industrial countries.2

Researchers havemeasured central bankindependence in a

variety of creative ways, including a number of legal provisions,

turnover of the central bank governor, the nature of

the bank's mandate (e.g., is it directed to pursue price stability?),

and answers to a questionnaire. A common, but not

universal, finding is that countries with more independent

central banks have enjoyed lower average inflation rates

without suffering lower average growth rates, as depicted

in figure 3.1.3