When Central Banks buy Bonds - Independence and the Power to say No

In comments at the Barclays Capital 14th Annual Global Inflation-Linked Conference in New York today, Adam Posen counters those who argue that the large-scale purchases of government bonds or private-sector securities by central banks compromises their independence from elected officials, their reputation and thus their counter-inflationary credibility.

Published on 14 June 2010

Dr Posen argues that central bank independence is not primarily a matter of reputation, but of reality.
He says, "The substance of central bank independence is giving monetary policy setting committees the legal autonomy to refuse demands to purchase debt instruments..." But that does not mean central banks should not purchase bonds when it is right to do so. He says, "...the counter-inflationary credibility of central banks is not fragile to voluntary purchases of bonds, public or private, made with reference to clear economic (as opposed to political) justification."

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