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A. What are the two types of central bank independence? B. What institutional features of the...

A. What are the two types of central bank independence?

B. What institutional features of the Federal Reserve make it independent?

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Answer #1

a)

  • Central bank should be independent to carry out monetary policy instruments without any interventions.
  • Goal independence; Central bank should be independent to fix its future goals.

b)

Following instutional features make Federal Reserve Independent:

  • Federal Reserve is not financially dependent on congress for its budget.
  • Federal Government does not have its share in Federal Reserve.
  • Members of congress are not eligible for membership of Federal Reserve Board.
  • members are elected for staggering 14 years, hence political parties can not influence their behaviors.
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