... most notably Germany, the independence of the central bank and its success in controlling inflation is credited as a major factor of economic success. The argument that the Bank of England should be independent had been gaining strength with economic commentators since the late 1980's, especially in the wake of the high inflation experienced during the Lawson boom. The economic case for central bank independence is fairly clear. In order to control inflation, it is necessary to reduce the inflation expectation of wage and price setters. Therefore, the credibility of a central bank's commitment to combating inflation is critical. If a central bank has a poor record in fighting inflation, wage and price setters are likely to distrust its forecasts, and thus will consider overestimating inflation as less risky than underestimating it. The result is a high expectation, and thus, high inflation. To reduce the inflation expectation today, price and ...

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