S/E/18. Independent central banks and the King framework

Amongst the industrialised economies, inflation over the last 30 years has averaged lower in nations with independent central banks. This essay will begin by defining the term independence. It will then draw on a theoretical framework developed by King to explain why independent central banks may be in a better position to achieve low and sustainable levels of inflation by influencing expectations. The analysis will then touch on possible sources of tension between independent central banks and the governments under which they operate. The essay will finish by reviewing empirical findings on the association between greater central bank independence and average inflation.