CFA Level I · CFA Level I Exam · Monetary Policy
A central bank has operational independence but its inflation target is set by the government. This arrangement is best described as an example of:
This is operational independence without target independence. The central bank is free to choose its policy tools and rates to achieve the goal, but the government sets the inflation target itself, so the bank lacks the independence to define its own objective.
- Agoal independence with no operational independence
- Boperational independence without target independenceCorrect
- Cneither goal nor operational independence
Explanation
Target independence means the bank chooses the inflation target itself; operational independence means it chooses the instruments to reach the target. Here the government sets the target, but the bank controls the tools.
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