The Illusory Independence of Bank of Japan

Kerstins Rum Session 1: Central banking – a science or an art? organized by Lars Fredrik Øksendal and Anders Ögren


Åsa Malmström Rognes


Central bank independence became something of a trend in the 1990s. The reasons include memories of stagflation in the 1980s, the success of the German Bundesbank in keeping inflation in check, the memories of the ERM crisis in the early 1990s and the preparation for the independent European Central Bank (ECB). Revised central bank laws provided for independence for several central banks in mature economies, including the Bank of England, Riksbanken, the ECB and the Bank of Japan (BoJ). Central bank autonomy had already been defined and analysed, in particular with respect to monetary policy outcome and the ability to keep inflation in check. A framework by Bade & Parkin in 1977 formed the basis for analysis of autonomy and has been refined and further developed by among others Grilli, Masciandaro & Tabellini (1991), Cukierman (1992) and Arnone et al (2006). The autonomy or independence can be analysed in terms of de jure and de facto independence to tease out what independence means in practice. The new Bank of Japan law in 1998 provided for an independent central bank. This paper analyses the de jure and de facto independence of the Bank of Japan and how unconventional monetary policy affected this and finds that the increased intertwining of monetary and fiscal policy makes the independence somewhat illusory.


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