By Adam Posen
THE 1990s WERE a golden age for central bankers, if not for central banking. The vast majority of central banks gained independence to set monetary policy, and in some cases the goals of monetary policy, free from political control. The priority of maintaining price stability attracted widespread support and the disinflation of the 1980s was largely consolidated.
With a nearly global movement towards efforts at fiscal consolidation, monetary policy became the primary instrument of economic stabilization. As increasing numbers of currencies floated, albeit often in managed fashion, room for the exercise of discretionary monetary policy increased. Central banks like the Bank of England, once deemed servants of inflationary politicians, became seen as bedrocks of stability ? even the Banque de France became known as a Franc Fort.
Between the 1987 US stock market crash and the 1997-98 Asian financial crisis, Alan Greenspan went from being the new kid on the central banking block to the chairman not only of the Federal Reserve, but of the Committee to Save the World.
This era of good feelings towards central bankers could not last indefinitely, and it is now coming to a close.