A final institutional improvement that supports macroeconomic stability is increased independence for the central bank. A central bank that is dominated by the government may be forced to ease policy inappropriately to reduce the financing costs of government debt or to help re-elect incumbents.
Inflation-targeting regimes make sense only if the central bank has independent control of the instruments of monetary policy, as holding the central bank responsible for meeting its inflation target is hardly possible otherwise. Here, once again, the trends in Latin America generally appear favorable.