A Friend in Need? The Effect of Institutional Independence on Central Bank Responses to the COVID-19 Crises

Abstract

The paper investigates whether institutional independence contributes positively to central bank responses to economic emergencies. The paper examines evidence of central bank responses to the economic effects of the COVID-19 pandemic of 2020 to investigate correlation between independence and policy responsiveness. We compare ECB, BoE and Fed responses to the economic upheaval caused by the global pandemic with their response to the Financial Crisis of 2008 and evaluate the contribution of institutional independence to addressing economic needs. The paper offers a summary of the nature and role of central banks;explains the idea of institutional independence and its contribution to policy making, offers some background to the economic impacts of the pandemic and positions the role of central banks within wider policy responses. An evaluation of central bank response to date, and the value of independence in articulating that response, contributes to the debate as to the nature, function, and future of central banking. The conclusions of the paper advance the debate on the value of independent institutions within a less accommodating political economy.