A Structuralist Theory of Central Bank Independence

Abstract

Can a heterodox economist find arguments in favor of Central Bank independence? Economists currently favor arguments in favor of Central Bank independence based on Barro-Gordon (1983 a,b), a very ‘orthodox’ model. Consequently, those who view the economic orthodoxy with suspicion tend to question Central Bank independence. I argue that Central Bank independence can be beneficial even in a very ‘structuralist’ economy: one in which workers are unionized, firms are cartelized and inflation arises as the result of distributive struggles among capitalists and workers. This is so because it is the time-inconsistency issue, and not the structure of the economy, that which generates the inflation bias that Central Bank independence is set to eliminate.

Keywords: Central Bank Independence, Inflation Bias, Structuralist Theories of Inflation, Distributive Struggles.

JEL Classification: E58, E61, E11