Central bank independence has for many years appeared to be a successful
way of ensuring low inflation. But that independence has been
modified, compromised, or even ended in the wake of the recent financial
crisis. This paper explains why such shocks are likely to affect independence
as a consequence of the inevitable incompleteness of the contract
which codifies the relationship between central banks and governments.
This explanation is supported by examination of some historical episodes,
primarily from the UK as that has one of the world's oldest central banks
and thus a very long run of data, but also from other countries.
Having shown the inevitably fragile nature of central bank independence
in a world where shocks are inevitable, the paper then concludes
with a few remarks about the implications for price stability over the