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Central bank independence and inflation

Author(s): Ryszard Kokoszczyński, Joanna Mackiewicz-Łyziak

Date published: Dec 2019

SUERF Policy Note, Issue No 119
by Ryszard Kokoszczyński (Narodowy Bank Polski and University of Warsaw) and Joanna Mackiewicz-Łyziak (University of Warsaw)

JEL-codes: E31, E58.
Keywords: Central bank independence, inflation, dynamic panel data models.

Central bank independence (CBI) and its link to inflation have become a part of conventional wisdom. However, the literature shows that there is a lack of a stable general pattern for the relation between CBI and inflation, even for relatively homogenous groups of countries. We use two indexes for CBI: one proposed by Grilli, Masciandaro and Tabellini (1991) and another one by Cukierman, Webb and Neyapti (1992) to analyse the CBI-inflation relationship in the groups of advanced and non-advanced economies. In addition, we use disaggregated indices to check what aspects of independence are of highest importance. Our results suggest that CBI has negative significant impact on inflation mostly by results for non-advanced economies and that this relationship did not change during the recent crisis.

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SUERF Policy Note, Issue No 119SUERF Policy Note, Issue No 119

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