It is often argued that a high level of central bank independence together with some explicit mandate for the central bank to aim for price stability constitute important institutional devices to maintain price stability (see, for example, Alesina and Summers, 1993, and De Haan and Sturm, 1992). The position of the Bundesbank is regularly mentioned as an example par excellence. The German central bank is relatively autonomous; at the same time, Germany has one of the best post-World War II inflation records among OECD countries. As a matter of fact, the statutes of the European Central Bank are largely modeled after the law governing the Bundesbank.

Most observers think that an independent central bank is able to give priority to a low level of inflation, whereas in countries with a more dependent central bank other considerations (like re-election prospects of politicians, promoting a lower level of unemployment) may interfere with the objective of price stability. Indeed, various authors have found empirical support for this hypothesis (see Eijffinger and De Haan, 1996, for a review). The view that, other things being the same, greater central bank independence is conducive to lower inflation rates, raises various questions: