The democratic deficit and inflation targeting
There is widespread consensus that a goal dependent, but instrument independent central bank solves the democratic deficit. However, the standard solution to the democratic deficit risks reintroducing the biases of political control over monetary policy through the power of politicians to change the monetary policy rule. This paper considers the problem as an instance of the paradox of power in the sphere of monetary policy and proposes a solution drawing on criteria for the rule of law and the principles of constitutional economics. Finally a normative test of inflation targeting is proposed, again drawing on the constitutional economics literature. © 2005 Economic Society of South Africa.