Central Bank Independence and Inflation

Abstract

As a conservative central banker, I can easily think of a number of reasons to justify Dante's harsh treatment of inflators. To begin with, a higher level of inflation is generally associated with higher uncertainty about inflation. And higher uncertainty about inflation means more difficult planning and contracting by business and labor. It also means higher risk premia in long-term interest rates, which depress capital formation and productivity. In fact, 600 years after Dante, Lenin said the best way to destroy the capital ist system was to debauch the currency. And according to Keynes, Lenin was right.