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Discussion Paper Details

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Title: Populism and Central Bank Independence

Author(s): Charles A Goodhart and Rosa M Lastra

Publication Date: June 2017

Keyword(s): accountability, central bank independence, Judicial review, Legitimacy, Mandates and populism

Programme Area(s): Monetary Economics and Fluctuations

Abstract: The consensus that surrounded the granting of central bank independence in the pursuit of a price stability oriented monetary policy has been challenged in the aftermath of the global financial crisis, in the light of the rise of populism on the one hand and the expanded mandates of central banks on the other hand. After considering the economic case for independence and the three Ds (distributional, directional and duration effects), the paper examines three different dimensions in the debate of how the rise in populism - or simply general discontent with the status quo - affects central bank independence. Finally, the paper examines how to interpret the legality of central bank mandates, and whether or not central banks have exceeded their powers. This analysis leads us in turn to consider accountability and, in particular, the judicial review of central bank actions and decisions. It is important to have in place adequate mechanisms to "guard the guardians" of monetary and financial stability.

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Bibliographic Reference

Goodhart, C and Lastra, R. 2017. 'Populism and Central Bank Independence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=12122