Central banks: Independence, accountability, credibility

In the 1990s, it became widely accepted that more independent central banks would conduct monetary policy in a way that promotes financial stability a nd economic growth. Theoretical arguments in favor of central banks' indepe ndence were reflected in practical steps. An increasing number of central b anks in both advanced and developing economies gained a higher degree of in dependence in pursuing monetary policy. With the advent of the central bank s' independence, however, their accountability also emerged as a concern. T his article discusses the relationship between central banks' independence, accountability and credibility. The first part reviews theoretical and emp irical arguments in support of central bank independence, as well as some c riticism of these arguments. The second part discusses the importance of ce ntral bank accountability vis-a-vis the general public. In the third part, the article turns to some specific problems of central bank independence an d accountability in transition economies, and argues that instrumental but not goal independence of central banks is appropriate for these economies.