In Chapter 2, we briefly discuss causes and consequences of inflation to lay the foundation for a detailed analysis of the relation between monetary policy and other policy fields

Chapter 4 is dedicated to the more recent history of monetary policy in the period labelled Great Moderation. We focus on the Federal Reserve Board (Fed), the Bank of England (BoE) the Bundesbank and its successor, the European Central Bank as well as on the South African Reserve Bank (SARB), which offers an interesting and contrasting perspective.

In the final Chapter 9 we discuss the latest reactions of central banks to the rise of inflation, which can be interpreted as an attempt to safeguard their independence against governments. We consequently argue for a return to a division of labour in line with the Tinbergen-rule of economic policy, which can be translated as: one objective, one instrument, one agency. This shift would place much more responsibility for broader economic outcomes on the shoulders of governments, leaving central banks to tend to the narrower agenda of monetary stability.

We start it with a brief historical overview about the emergence of independent central banks in Chapter 1. The chapter looks at different historical periods to work out ways to secure price stability that have been chosen in the past.

This is followed by a more general analysis of balance sheet operations of central banks against the background of CBI in Chapter 6.

Chapter 8 adds to a clarification of the confusion about CBI by discussing the need for transparency and accountability in light of a growing – mainly political science driven – literature on the perceived democratic deficit of technocratic policy solutions. We show that this literature overlooks important aspects of CBI.

Chapter 7 takes an Olsonian perspective. We ask the question of what drove central bank balance sheet policies in democracies. This development is understood from the perspective of Mancur Olson’s ground-breaking theory of the ‘rise and decline of nations’ which accounts for the increasing difficulty to reform as distributional coalitions impose the ‘slavery of the rent-seeking society’ (as the former chief economist of the GATT, Jan Tumlir, so appropriately put it) on democratic societies. In light of these considerations, the factual degree of central bank independence might lower than it appears at first glance.

Chapter 5 offers a description and an interpretation of the policy responses of four leading central banks (Fed, ECB, Bank of England and Bank of Japan) to the Great Recession.

Chapter 3 is a summary of the theoretical concepts that lead to the logic to grant independence to central banks, ways to measure CBI and its empirical effects on price stability. We show that different schools of thought (Chicago, Virginia, Freiburg) come to similar conclusions, although their methodological starting points are very different.