The issue of an independent central bank is assessed in the context of experience in the U.K. economy. The historical role of the Bank of England is examined, revealing that the success of anti-inflation policy depends on the exchange-rate regime as well as on the institutional arrangements holding between the Bank and government. Inflation targets are discussed but independence is also addressed by seeing how other targets, such as nominal GDP, might perform. The theoretical arguments for and against an independent central bank are discussed in detail. It is argued that "partial" independence, where the central bank enjoys autonomy in relatively good states and is overridden in bad states, is the preferred form of independence. Attention is drawn to the costs arising owing to a lack of coordination of policy when the finance ministry may compete against the central bank in the case where the latter is independent. Copyright 1994 by Oxford University Press.
