ECB Study Finds Signs of Eroding Central Bank Independence
Flags of the European Union fly outside the European Central Bank headquarters ahead of the bank’s rate announcement in Frankfurt, Germany. (Photographer: Alex Kraus/Bloomberg)

ECB Study Finds Signs of Eroding Central Bank Independence

Central banks’ iron-clad independence appears to be waning due to attacks from politicians, according to a European Central Bank working paper.

That’s according to a study that looked at 13 monetary authorities, accounting for 75% of global economic output, in the 2018-2019 period. The authors -- Rodolfo Dall’Orto Mas, Benjamin Vonessen, Christian Fehlker and Katrin Arnold -- found that nearly half experienced a de-facto deterioration of autonomy.

ECB Study Finds Signs of Eroding Central Bank Independence

“The feature of independence most affected in our sample of central banks has been institutional independence, with government attacks or interferences largely focusing on pressuring monetary policy to look into growth objectives,” they wrote.

Monetary policy makers across major economies enjoy statutory independence from government to shield them from pressure to help finance deficits, which can cause runaway inflation. While the foundation for an autonomous U.S. Federal Reserve got laid in 1951, the drive toward central bank independence gained steam in the final years of the 20th century.

With rate setters having resorted to government bond purchases and other unconventional monetary stimulus measures, there’s been plenty of lambasting from politicians in recent years, prompting concerns the golden age of institutional independence might be ending.

Turkish President Recep Tayyip Erdogan fired his country’s top monetary policy maker last year and U.S. President Donald Trump repeatedly criticized Fed Chair Jerome Powell for raising interest rates.

“The deterioration in the de facto independence of central banks is a concern, as the reasons that helped forge the pre-crisis consensuses on central bank independence to achieve price stability remain valid today,” they said.

©2020 Bloomberg L.P.

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