Do countries with greater central bank independence have higher unemployment or greater output fluctuations?

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Expert Solution

Central bank independence is generally a measure of how much free from government influence the central bankers are. The more independent the central bank becomes, the lower the inflation it will allow without affecting the growth and employment of the economy. The countries with greater independence of the central bank have will experience low unemployment.
The central bank of a country carries out the nation’s monetary policy and control its money supply, with the maintanance of low inflation in the country with steady growth. The central bank influences the interest rates and stays active in the open market operations for controlling the borrowing cost and leading it throughout the economy.
As the central bank becomes more and more independent, the inflation rate of the country and its variability of inflation decreases, but the real GDP growth and the unemployment of the economy remains unchanged.

Rahul Sunny answered 1 year ago

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