SHARE   Share on Twitter Share on Facebook Email

Debt, Inflation and Central Bank Independence

Consider aligning the central bank''s objectives closer to the preferences of society and away from those of a non-benevolent government. Although this reform would be socially beneficial and initially succeed in reducing inflation, it would fail to lower inflation permanently. The smaller anticipated policy distortions implemented by a more independent central bank would induce the fiscal authority to trade-off higher current deficits for lower future deficits. In the long run, inflation would increase to accommodate a higher public debt. Alternatively, imposing a strict inflation target would lower inflation permanently and insulate the primary deficit from political distortions.

Read Full Text (790K)


Subscribe to our newsletter for updates on published research, data news, and latest econ information.
Name:   Email:  
Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo