Central Bank Independence

Much literature has written about central bank independence over the last few

years. When discussing independence, I will make the distinction Fischer (1995)

has made between goal and instrument independence. Goal independence

refers to the situation where the central bank is responsible for the setting of its

own policy targets. Instrument independence occurs when the central bank is

given total control over the instruments of monetary policy to achieve pre-defined

objectives. This is a crucial distinction as it has far reaching implications for

accountability, and how monetary policy will be determined.