to be negatively correlated with the first and second moment of inflation, showing little, if any, correlation with output variability. furthermore, cbi can be beneficial in ensuring sustainable public debt dynamics, as theoretically shown by mourmouras and su ( 1995 ) in a dynamic game set - up. as a result of its theoretical and empirical advantages, cbi was widely adopted ( particularly in the 1990s ) in major industrialised economies and beyond. the form of independence, however, varies between instrument ( economic ) and goal ( political ) independence ( see fischer, 1995 ). under the former, the operational goals of the central bank are exogenously determined, either by legislation or by another official body such as the finance ministry. under instrument independence, the central bank is free to choose without external interference the means ( the policy instruments ) best suited to meet its given goals : the bank of england is an example of this form of independence. under goal independence, the central bank chooses independently both the goals of its policy, as well as the instruments best suited to meet its self - selected goal : the ecb is an example of this type of independence. delegating monetary policy to an independent central bank raises important questions of democratic checks and balances, i. e. questions of transparency and accountability. accountability, in turn, is related to at least two dimensions. first, the type of central bank independence : the closer we move towards the independence goal, the higher the need for transparency and accountability. the second dimension is the number of goals set for the independent central bank. perhaps non - intuitively, accountability declines with the number of policy goals, as given a set of policy instruments, increasing the number of goals results in trade - offs between goals. as the welfare ordering of policy outcomes under trade - offs is intrinsically more difficult than performance - ordering under a single policy objective, the scope for accountability increases when the central bank focuses on one policy objective. this accountability enhancement, combined with the theoretical and empirical advantages of inflation - averse monetary policy, resulted in the majority of the countries adopting central bank independence to define price stability as the overriding objective of monetary policy. the ecb is a characteristic example of this trend. on the other hand, the fed, whose dual mandate includes price stability and maximum employment ( plus moderate long - term interest rates ), is a notable exception. monetary policy in the post - crisis period the global financial crisis of 2008 / 2009 and the ensuing european sovereign debt

economic risks, but more and more to create and propagate risks on its own. in the past two decades, financial innovation and liberalisation made important contributions to the overall productivity of our economies. but as the demand for finance increased throughout the 1990s, intermediaries had growing incentives to develop innovative funding techniques. the securitisation of assets, for example – the transformation of bilateral loans into tradable credit instruments – had tremendous potential to facilitate the diversification and efficient management of risk. as such, it was a powerful and useful tool. but securitisation also meant that banks and non - banks were able to sell credit – or place it off - balance sheet – immediately after it had been extended. this alchemy enabled lenders to expand the volume of their operations and conserve on capital. fatally, the same mechanism weakened lenders ’ incentives for prudent screening and steady monitoring. the resulting declines in underwriting standards and lending oversight was one of the main sources of the excessive credit boom. the credit boom had three multipliers. first, ill - designed compensation schemes for loan managers reinforced the shortening of lenders ’ horizons. in the eyes of many loan managers, the short - run gains from an expansion of credit obscured the need for any consideration of the potential losses that their institution could incur over the longer term. second, the complex structure of securitised products made it difficult for the ultimate holders to assess the quality of the underlying investment. this perpetuated the boom, as it took time for investors to discover and reassess the underlying risks. third, international imbalances and their potential to encourage liquidity creation on a global scale acted as the macroeconomic – and perhaps most powerful – multiplier. a chronic shortage of savings in some of the world ’ s advanced economies was funded by an excess of savings in other parts of the world. these global macroeconomic imbalances contributed to the creation of international liquidity and therefore further fuelled credit and debt accumulation. in the period before the start of the crisis, the oil and commodity price shock augmented the savings glut even further. the policy response the interplay of the forces that i have described went into reverse – suddenly, although not unexpectedly – sometime in the middle of 2007. liquidity dried up, and the entire financial sector was put under severe strain. the collapse of a major and highly interconnected financial player in mid - september of last year then turned