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Vol. 75, No. 4
Posted 1993-07-01

Central Bank Independence and Economic Performance

by Patricia S. Pollard

Central bank independence is becoming popular, as evidenced by the number of countries that have recently enacted legislation removing their central banks from government control. Examining the economic rationale for this popularity, Patricia S. Pollard employs empirical studies to reveal that countries with independent central banks tend to experience low inflation with no loss of economic growth. On the other hand, theoretical studies illustrate that an independent bank may increase policy conflicts within a country, resulting in poor economic performance. Weaknesses in both types of studies, however, may limit their ability to prove or disprove the usefulness of central bank independence regarding economic performance. Pollard concludes that the relationship between central bank independence and the economy is not fully understood.




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