The meaning behind this quote is the following : In a dynamic model, the economic agents' current decisions generally depend not only on the present situation but also on how they anticipate future political actions.
[3] These prevention measures can be seen through the implementation of ruled monetary policies, or through more flexible but credible commitments, possibly achieved by the independence of the central bank.
Theoretically, an independent central bank would have little incentive to cheat, more credibility in its commitment and then would lead to a lower inflation level and act like a guardian of price stability.
But other variables can also be targeted to face time inconsistency : natural GDP growth, inflation directly... A well-known rule-based monetary policy is the Taylor-rule, correlating the response of the central bank in terms of interest rate to inflation and production variations, following an equation with fixed parameters.
For example, Alex Cukierman and Stefan Gerlach argue that inflationary bias is true provided the assumption that central bank policymakers aim for higher employment above its natural level.
Helder Ferreira de Mendonça argued that in the developing world, when countries devalue their currencies when running into problems with the balance of payments equilibrium, an inflationary bias is the result.
[5] Gustavo Piga attributed inflationary bias due to lobbying pressures of outside constituencies interested in maintaining employment levels.
As a solution, Piga proposes to enhance atomistic labor markets and decrease trade-unions' capacity to organize, but says this may also generate increased output instability.
[7] Fernando Cardim De Carvalho revisited the idea of central bank independence touted by Kenneth Rogoff.
Since Keynesian monetary theory relies on the non-neutrality of money, "once one rejects the natural rate hypothesis, the proposal of independence of the central bank to set its own goals and to pursue them as it feels fit makes no sense."