University of Hagen, Germany

Abstract

There is nowadays a wide consensus among economists that central banks should be independent. The substantiation of this claim was derived from the modern theory of monetary policy and from empirical experiences with central bank independence, both concentrated on developed industrial countries. This paper analyzes the question of the lessons that might be drawn from this for transition countries. The main result is: as long as central bank independence is only "legal", i.e. only exists on paper, as still in many transition countries, there is a danger that it will not only be ineffective but even counterproductive. Further institutional supplements are necessary.