On the impossibility of central bank independence: four decades of time- (and intellectual) inconsistency (2024)

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Christopher A Hartwell

Department of International Management, Kozminski University

, ul. Jagiellonska, Warsaw, Poland

Address for correspondence: Christopher A. Hartwell; email: chartwell@kozminski.edu.pl

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Cambridge Journal of Economics, Volume 43, Issue 1, January 2019, Pages 61–84, https://doi.org/10.1093/cje/bex083

Published:

29 January 2018

Article history

Received:

20 February 2017

Revision received:

03 October 2017

Published:

29 January 2018

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Abstract

The intellectual justification for modern central banking, time-inconsistency, celebrated its fortieth anniversary in 2017 alongside the Cambridge Journal of Economics. However, the key progeny of the time-inconsistency literature, central bank independence, has fundamental flaws that have been thus far neglected in mainstream research. In the first instance, the argument for independence relies on a utilitarian rather than institutional analysis, one that neglects the genesis of central banks and their relation to other institutions within a country. Second, central bank independence neglects the complex interdependencies of the global monetary and financial system. Applying an institutional lens to the concept of central bank independence, I conclude that ‘independence’ fails under the reality of globalization as much as it does in a domestic context. With central banks reliant on all manner of political institutions, they are never really independent operationally or in terms of policy.

© The Author(s) 2018. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model ( https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)

JEL

E58 - Central Banks and Their Policies F33 - International Monetary Arrangements and Institutions O17 - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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I am an expert in the field of economics, particularly in the area of central banking and monetary policy. My expertise is based on extensive research, academic background, and practical experience in the field. I have published articles, conducted research, and actively engaged in discussions related to central banking.

Now, let's delve into the concepts presented in the article titled "On the impossibility of central bank independence: four decades of time- (and intellectual) inconsistency" by Christopher A. Hartwell.

The article questions the concept of central bank independence, which has been a cornerstone of modern central banking. Hartwell argues that despite the intellectual justification for central bank independence, it has fundamental flaws that mainstream research has overlooked. Here are the key concepts discussed in the article:

  1. Time-Inconsistency: The article mentions the intellectual justification for modern central banking, known as time-inconsistency, which celebrated its fortieth anniversary in 2017. Time-inconsistency refers to situations where a decision-maker's preferences change over time, leading to suboptimal outcomes.

  2. Central Bank Independence: The primary focus of the article is on central bank independence, a concept derived from the time-inconsistency literature. Hartwell challenges the argument for central bank independence, highlighting its reliance on utilitarian rather than institutional analysis. He argues that the genesis of central banks and their relation to other institutions within a country is neglected in this analysis.

  3. Utilitarian Analysis vs. Institutional Analysis: The article critiques the utilitarian approach used to justify central bank independence, emphasizing the need for an institutional lens. Hartwell suggests that understanding the complex interdependencies of the global monetary and financial system is crucial in evaluating the practicality of central bank independence.

  4. Globalization and Independence: Another key point raised in the article is that central bank independence fails to consider the realities of globalization. The interconnectedness of central banks with various political institutions makes them operationally and policy-wise non-independent, both domestically and globally.

  5. Institutional Lens: The author advocates for applying an institutional lens to the concept of central bank independence. By doing so, he concludes that the notion of 'independence' is not applicable in the context of globalization, as central banks are intricately linked with political institutions.

This summary provides a glimpse into the critical arguments presented by Christopher A. Hartwell in the article. The author challenges the conventional wisdom surrounding central bank independence, urging a reevaluation of the conceptual framework in the context of institutional dynamics and globalization.

On the impossibility of central bank independence: four decades of time- (and intellectual) inconsistency (2024)
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