The Extent to Which a Central Bank Should Have Both Goal and Instrument Independence and Examine the Possible Implication of This on Achievement of the Macro-Economic Objectives

A possible way around uncertain bank preferences may be the disclosure of greater information to the public. The Central Bank could be forced to give as much information as possible to the public on anti-inflation policies hence revealing their position on inflation policy.
If an independent Central Bank is assigned a clear and limited mandate, this represents a constraint on the discretionary exercise of power by the government but also by the Central Bank itself. In the absence of a complete and universally applicable rule for monetary policy an independent Central Bank which focuses firmly on the single overriding goal of price stability is the closest realistic and credible substitute for a literal "rule of law". In particular such a Central Bank does not have the discretion to pick and choose at will among several objectives. A clear commitment to a single overriding objective is the key to credibility and it is also the key for accountability, i.e. the obligation to constantly justify and explain policies to the general public.
Many arguments in favour of Central Bank independence focus on the German Bundesbank which was widely considered as being successful in that in consistently delivers low inflation. The Bundesbank objectives are defined in statutes that insulate it from any government interference. …