The Smile of the Cheshire Cat: Central Bank Independence after the Crisis

Central banks have engaged in radical measures since the crisis, which critics see as putting their independence in jeopardy. We argue that central banks have been pressed to adopt unconventional measures by government inaction. These pressures are greater in high-veto-point systems than when the central bank faces a unitary government. We investigate this hypothesis with a comparison of the Bank of England, the US Federal Reserve and the European Central Bank. This comparison shows that central banks have tried to avoid undertaking these measures but their hands are forced by the imperative of maintaining financial stability. One result is that conventional indicators of independence no longer describe central banks’ capacity to achieve an inflation target. We conclude that the analysis of delegation should consider the role of political indecision as well as active decisions to delegate. Furthermore, there is no necessity for patterns of delegation to adhere to norms about the legitimate grant of public power when these patterns are the result of political drift rather than design.