Central bank independence has been seen as an effective way to achieve low inflation. However, by increasing the likelihood that the government will adopt a fixed exchange rate rather than maintain domestic control over monetary policy, an independent central bank may be a victim of its own success. Because monetary policy set by an independent central bank may result in what the government considers to be adverse distributive consequences, governments may look for ways to mitigate the central bank's control over monetary policy, turning to a fixed exchange rate as one possible solution. The author examines the implications of this argument through an analysis of the British, German, and French governments' preferences on joining the European Monetary System in 1978.
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