Actually, the independence of central banks, or in other words the isolation of monetary policy from fiscal and interventions to counteract market failures, is not a settled or proven essential for developed economies.

A basic knowledge of dynamic macroeconomic theory and evidence shows that some level of coordination of monetary and fiscal policy is essential to avoid bad corner outcomes. That means coordination between the finance/treasury minister and the central bank.

Most of the time, independent monetary policy is fine to contain inflationary pressures, especially when most of them are externally driven in an open economy like Canada’s. But not always. In those cases, when fiscal and monetary policy move in opposite directions, the trajectory will be poor.