Modelling Central Bank Independence and Inflation: Deus ex Machina?
Modelling Central Bank Independence and Inflation: Deus ex Machina?

Summary/Abstract: Central bank independence represents the core element of assessing the complex relationship be-tween government and central bank, having at background the fundamental issue of a free monetary policy decision-making process from the hands of the political circle. However, central bank independ-ence is a multilevel concept within some social, economic and behavioral implications both for the cen-tral banks and for the society at whole. Central bank independence is needed in order to establish an autonomous central bank with a high degree of freedom in choosing its’ instruments, objectives, tech-niques and tactics. Moreover, a high degree of transparency for the public disclosure and monitoring of central bank operation and transaction is needed for the social barometer of the central bank. Conse-quently, the central bank must have a high degree of accountability and responsibility vis-á-vis of the most democratic institution, i.e. Parliament. In this article it is presented a comprehensive study re-garding the complex relationship between central bank independence and inflation by modeling these two monetary policy panacea, in order to make a fine tuning regarding the causal relationship estab-lished in a heterodox manner.

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