Central Bank Independence and Inflation Targeting.The Case of Romania

There is a widespread agreement among central bankers around the world that the stability of the national currency should be entrusted to independent central banks. There are two arguments supporting this idea: 1. to achieve macroeconomic stability, a low and stable inflation is required, an independent central bank having the means and the tools to pursue it as opposed to governments that through its spending often trigger high inflation rates; 2. an independent central bank can signal effective and credible inflation expectations by implementing an effective monetary policy. In our opinion, over the last twenty years, there has been a sustained trend towards central bank independence, governments around the world being aware that independent central banks can sustain growth. A great number of central banks have adopted an inflation targeting regime, given its advantages as compared to classical monetary anchors (i.e. money supply and foreign exchange rate) of an increasing number of central banks. The first section of the paper is a survey of the literature concerning central bank independence and inflation targeting. The second section deals with aspects of central bank independence and inflation targeting in Romania over the last two decades. In the final section an index for central bank independence and inflation targeting is developed using the following three groups of variables: political and legal central bank independence, central bank governance and conduct of monetary policy and central bank transparency and accountability. The paper concludes that the new index for central bank independence and inflation targeting can eliminate the differences between de jure and de facto independence in order to measure independence both for developed countries and emerging countries based on some legal aspect and of some actual practice and behaviour of the central banks.