Prepared for the session “Central Bank Independence: Reality or Myth?”

discussed three alternative institutional arrangements through which governments can exercise responsibility for monetary policy: a commodity standard, an independent central bank, and legislated rules. He focused mainly on the latter two, and he concluded—based on a review of decades of experience with central banking in the United States and other countries—that legislating rules for the instruments of policy was the better alternative. In the half century since Friedman wrote that essay we have accumulated more information about these alternatives. In particular we have seen varying degrees of adherence to rules-based policy and varying degrees of central bank independence. We have also seen corresponding changes in economic performance. In this paper I examine this evidence and draw implications for central banking in the future. I start with the changes in overall macroeconomic stability over the past fifty years during which time the Great Moderation came and went. I then consider associated changes in the degree that the central bank is rules-based and the degree that it is independent