The Governor of the Israeli central bank, Stanley Fischer, is one of the optimists and has recently likened central bank independence to marriage; like in a marriage, there are things you do together and things you do separately.8 However, regardless of which solutions gradually crystallize, I believe it is essential not to withdraw the central banks’ independence with regard to the task of price stability. The central bank should be able to decide independently over the means allocated for this purpose, such as the policy rate and other potential means. 7  This is one example of the so-called Lucas critique, which says that empirical relationships can change if the economic policy changes as the economic policy affect agents’ expectations. 8  See Da Costa (2013). 6  BIS central bankers’ speeches  Inflation targeting Let me go on to the other area I intend to discuss today – inflation targeting. As I mentioned earlier, the central banks’ independence and inflation targeting can be regarded as inseparable. They are both central parts of the monetary policy framework that was regarded as very successful, at least up until the crisis. Independence and inflation targeting can reinforce one another in both good and bad ways. Increased independence can contribute to greater credibility, which in turn can make it easier to attain the inflation target. A period of low and stable inflation creates confidence and legitimacy for inflation targeting and increases the political support for independence, and so on.
One type of argument concerns the fact that many central banks cut their rates as far as possible in connection with the crisis and were forced to go on to more unorthodox and untried means of conducting monetary policy. When monetary policy was delegated to independent central banks, this was during a period when there was in principle only one instrument – the policy rate – at the central bank’s disposal. Unlike, for instance, taxes, the policy rate was regarded as something that could be delegated to “technocrats” who have not been popularly elected. But with the monetary policy conducted by a number of central banks after having cut their policy rates as far as possible, the situation has become much more complicated. Many of the measures implemented are considered to border on fiscal policy and then it is less evident that the central bank can act entirely independently of the political system. Some people say that the financial crisis led to a “creeping politicization” of monetary policy.3 Another type of argument focuses on the expanded role that many people assume central banks will gain in future, and in some areas have already gained, with regard to attempting to prevent future crises – in the new policy area known as macroprudential supervision. According to law, the Riksbank is to “promote an efficient payments system”, but this very general wording is not linked to any specific instrument that can be used for this purpose.