Inflation is costly. 1 History shows that governments lack the credibility to commit to timeconsistent monetary policy, and often subordinate it to other priorities. 2 Faced with elections, governments are tempted to boost short-term growth by stoking unexpected inflation. But in the long run, this just raises inflation expectations without any benefit to growth.
By delegating monetary policy to an independent, accountable central bank with a narrow mandate for price stability, democracies have found a way to reduce costly inflation without incurring output losses over the medium term.3 Despite this successful track record – or perhaps because of it – central bank independence has been recently questioned.