Criticism is most strident challenge to central bank’s decision announced last month

Central bank independence has recently re-emerged as a major concern within political economy discussions. This column shows that improvements in central bank independence yield long-lasting benefits, with a significantly greater impact on inflation in the long run compared to the short run. Additionally, it shows that central bank independence reduces inflation persistence, thereby enhancing the effectiveness of monetary policy. Finally, and in contrast to much of the existing literature, it finds that the long-term effects of central bank independence on inflation are more pronounced in developing countries.