Central bank independence has for many years appeared to be a successful way of ensuring low inflation. But that independence has been modified, compromised, or even ended in the wake of the recent financial crisis. Forrest Capie explains why such shocks are likely to affect independence as a consequence of the inevitable incompleteness of the contract which codifies the relationship between central banks and governments. This explanation is supported by examination of some historical episodes, primarily from the UK as that has one of the world’s oldest central banks and thus a very long run of data, but also from other countries. Having shown the inevitably fragile nature of central bank independence in a world where shocks are inevitable, the paper then concludes with a few remarks about the implications for price stability over the longer term.

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