Macroeconomics

Inflation and Central-Bank Independence

This scatterplot presents the interna-

tional experience with central-bank independence. The evidence shows that more

independent central banks tend to produce lower rates of inflation.

Source: Figure 1a, page 155, of Alberto Alesina and Lawrence H. Summers, “Central Bank

Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money,

Credit, and Banking 25 (May 1993): 151–162. Average inflation is for the period 1955–1988.

F I G U R E

1 5 - 2

Index of central-bank independence

Average

inflation

4.5

4

3.5

3

2.5

2

1.5

1

0.5

9

8

7

6

5

4

3

2

Spain

New Zealand

Italy

United Kingdom

Denmark

Australia

France/Norway/Sweden

Japan

Canada

Netherlands

Belgium

United States

Switzerland

Germany

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[T]he ideas of economists and political philosophers, both when they are right

and when they are wrong, are more powerful than is commonly understood.

Indeed, the world is ruled by little else. Practical men, who believe themselves

to be quite exempt from intellectual influences, are usually the slaves of some

defunct economist. Madmen in authority, who hear voices in the air, are distill-

ing their frenzy from some academic scribbler of a few years back.

This is as true today as it was when Keynes wrote it in 1936—except now that

academic scribbler is often Keynes himself.