The Experts

More proposals to politicise central banks

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Paul Krugman wants to increase inflation targets to allow for higher inflation. Correction: Krugman actually does not think we should allow central banks to target either headline or core inflation. Why? Because they are not telling the story he wants them to tell in the US right now.

His latest epiphany is to have them target productivity-adjusted wages. My old pal John Quiggin reckons we should reduce the RBA's political independence apropos the setting of monetary policy (I agree with him on financial stability and the payments system, but not monetary policy). Hungary is one step ahead of you, John…

“BUDAPEST (Dow Jones) – Hungary will draft a new central bank law, but the law will continue to respect central bank independence and won't change the central bank's current three per cent inflation target, a top governing Fidesz party official said Tuesday…

“The Fidesz government has been at loggerheads with the central bank over monetary policy ever since it came into power a year ago after a landslide election victory. The government has repeatedly criticised the bank for raising interest rates, lowered the rate-setters' pay sharply, and questioned the moral standing of the central bank governor.

“The central bank considers boosting growth as its prime economic goal, which may go against monetary policy concerns from time to time.

“The government's plans to draft new central bank legislation has prolonged investors' unease about the future of monetary policy objectives after its sharp criticism of the bank and as the government has already watered down the budget watchdog fiscal council and scaled back the powers of the Constitutional Court in matters concerning fiscal policy.”

Published: Thursday, May 26, 2011

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