Independence and Responsibility of Central Banks

Michal Kvasnička

doi:10.62374/t4k3ey64

Authors

Michal Kvasnička The Faculty of Economics and Administration, Masaryk University

DOI:

https://doi.org/10.62374/t4k3ey64

Keywords:

special-interest groups, information asymmetry, managerial discretion

Abstract

A strong information asymmetry may exist between central bank managers and both the public and the government. Therefore managerial discretion of the central bank managers is possible. On the other hand the government is able to constrain, or threaten it better than anyone else. For this reason the central bank can neither be fully controlled by the government, nor fully independent of it. The actual level of dependence may differ from the formal one, and may not be observable. There can also be many special-interest groups in the economy that can try either to bribe or threaten the central special bank managers. The strength and aims of these groups may change through the time. For this reason the generally optimal level of the central bank formal independence might not exist.

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