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The Boundaries of Central Bank Independence: Lessons from Unconventional Times Keynote Speech by Athanasios Orphanides

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  • Athanasios Orphanides

    (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail: athanasios.orphanides@mit.edu))

Abstract

What institutional arrangements for an independent central bank with a price stability mandate promote good policy outcomes when unconventional policies become necessary? Unconventional monetary policy poses challenges. The large scale asset purchases needed to counteract the zero lower bound on nominal interest rates have uncomfortable fiscal and distributional consequences and require central banks to assume greater risks on their balance sheets. Lack of clarity on the precise definition of price stability, coupled with concerns about the legitimacy of large balance sheet expansions, hinders policy: It encourages the central bank to eschew the decisive quantitative easing needed to reflate the economy and instead to accommodate too-low inflation. The experience of the Bank of Japan fs encounter with the zero lower bound suggests important benefits from a clear definition of price stability as a symmetric 2% goal for inflation, which the Bank of Japan adopted in 2013.

Suggested Citation

  • Athanasios Orphanides, 2018. "The Boundaries of Central Bank Independence: Lessons from Unconventional Times Keynote Speech by Athanasios Orphanides," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 36, pages 35-56, November.
    • Handle: RePEc:ime:imemes:v:36:y:2018:p:35-56
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    Citations

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    Cited by:

    1. Masciandaro, Donato, 2022. "Independence, conservatism, and beyond: Monetary policy, central bank governance and central banker preferences (1981–2021)," Journal of International Money and Finance, Elsevier, vol. 122(C).
    2. Shigenori Shiratsuka, 2018. "Central Banking in a Changing World Summary of the 2018 BOJ-IMES Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan," IMES Discussion Paper Series 18-E-11, Institute for Monetary and Economic Studies, Bank of Japan.
    3. Donato Masciandaro, 2021. "Central Bank Governance in Monetary Policy Economics (1981-2020)," BAFFI CAREFIN Working Papers 21153, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Koichi Hamada & Makoto Sakurai, 2022. "A return to international policy coordination in the age of secular stagnation," International Journal of Economic Policy Studies, Springer, vol. 16(2), pages 371-388, August.

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