Tuesday, 7 July 2015

ECB independence

Has the ECB ever been independent?

No is the short answer.

On it's front page it states:-

"The independence of the ECB is conducive to maintaining price stability. This is supported by extensive theoretical analysis and empirical evidence on central bank independence.
The ECB's independence is laid down in the institutional framework for the single monetary policy (in the Treaty and in the Statute)."

However, it is now known that the ECB is waiting for it's political leaders to tell it what to do!

The ECB itself says it cannot act until a result from negotiations have concluded, but negotiations have been going for months without a conclusion and Greece needs action now, not next month.

If central bank independence increases credibility, it should be associated with greater rigidity in the setting of nominal prices and money wages, reflecting the fact that the bank's promise to keep inflation low is believed. Indeed independence, not merely fails to reduce the cost of dis-inflation, but rather seems to increase it. Getting inflation down takes as long and calls for a larger short-term sacrifice of output and jobs, on average, in countries with relatively independent central banks.

Perhaps we should ease off the idea of an independent central bank and accept that it has political masters so that the Greek banks can have assistance immediately.

No comments:

Post a Comment