Central Bank Independence

The independence of central banks

Abstract

Purpose– As we all know, a central bank is also one part of the social systems, but why the central banks need to keep independence relatively. This paper aims to find this reason why central banks need to keep independence relatively how to measure independence of central banks.

Findings– It is found that the independent of the central banks is conducive to the stability of the social economy and the ways to measure the independent of the central banks are different. But there are also several ways that accepted by most people.

Key words: Central banks, Governments, Monetary stability, Central banks’ independence, measure.

Introduction The central banks independence is the law gives the central

According to the experience of most developed countries, when monetary policies are drawn up by the central banks which maintain relatively independent with the governments, the effectiveness of monetary policies can be ensured. To ensure the independence of central banks is in order to avoid that the governments directly intervene in the monetary policies. The independence of central banks can avoid that their governments’ debt is diluted by expansion of the monetary policy. So a short-term economic stimulus leads to prices rising, and threatens long-term economic development. The correlation between central bank independence and the inflation rate in the developed and emerging countries is a positive one(FLORIN 2010). According to M Parkin’s survey (2013), we can know the independent of central banks can make inflation rate and variability of inflation lower, but has no effect on real GDP or unemployment(M Parkin

It was 2008 financial crisis. After a crisis, the government decided to implement the four trillion stimulus plan and loose monetary policy. To meet with that, the central bank lowered the deposit reserve rate many times. But according to the Wall Street journal reported in 2011, central bank governor，zhou xiaochuan and central bank officials actually have objection about the stimulus policy. They worried about its money was too much and would cause bad loans and inflation. Even so, it didn't change the stimulus monetary policy. Negative effects of the stimulus policy since 2011 had began to emerge. The prices of housing were high in recent years because of the stimulus policy after the financial crisis. But in order to keep in same step with the government, central bank governor zhou xiaochuan had to defend four trillion stimulus plan in public occasions(hexiao