The rise of central bank independence (CBI) raises questions regarding the importance of CBI for economic growth. Where conventional theory focuses on the link between CBI and inflation as the common primary objective of any central bank is price stability, this paper explores the theoretical...

The Friedman rule states that steady-state welfare is maximized when there is deflation at the real rate of interest. Recent work by Khan et al. (2003) uses a richer model but still finds deflation optimal. In an otherwise standard new Keynesian model we show that, if households have hyperbolic...