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Central bank independence is now supported across the political spectrum. But James Forder says the arguments for independence are special pleading by sectional interests

In august 1979, Jimmy Carter appointed Paul Volcker to head the US Federal Reserve. In October, Volcker raised interest rates from 11.5 per cent to 15.5 per cent. Inflation in the US fell from 13.5 per cent in 1980 to 3.2 per cent in 1983. In the meantime, the Fed had caused the severe recession of 1980, Carter had lost the presidential election, and much of the world had followed the US lead in shifting policy to fighting inflation. The idea that central bank independence improves economic performance had become conventional wisdom.

This new wisdom stated that the only objective…

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