Economist of the day

Posted: 25 January 2011 in Uncategorized
Tags: , ,

For the last 20 or 30 years, political independence of central banks has been a popular idea among academic economists and, of course, heartily endorsed by central bankers. Such independence has not been much in evidence in the recent crisis. But central banks would very much like to restore their independence.

The independence doctrine, however, is predicated on the distributional neutrality of their policies. Once it is realised that monetary policy can have all sorts of distributional effects, the independence doctrine becomes impossible to defend in a democratic society.

Axel Leijonhufvud, “Shell game: Zero-interest policies as hidden subsidies to bank”

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