Published In

Economic Modelling

Document Type

Post-Print

Publication Date

2-2020

Subjects

Inflation (Finance) -- Econometric models, Monetary policy -- Econometric models Banks and banking, Central -- Econometric models

Abstract

This study examines the effect of legal central bank independence on inflation in developing countries. In spite of the policy consensus suggesting that central bank independence is an effective tool to control inflation, the evidence is still limited, particularly for developing countries. Using a novel dataset, we analyze the effect of central bank independence on inflation for a sample of 118 developing countries between 1980 and 2013. We find that higher central bank independence is associated with lower inflation rates. This effect on inflation is stronger the more democratic a country is, but it is also present in non-democratic countries. Our results are robust to different specifications and methodologies. Furthermore, we find that all dimensions included in the measurement of central bank independence (objectives, personnel, policy, and financial independence) contribute to curb inflation. Our results shed light on which types of reforms may be more effective at fighting inflation in developing countries.

Description

This is the author's accepted manuscript of an article that subsequently appeared as: More effective than we thought: Central bank independence and inflation in developing countries. Economic Modelling, 85, 87-105. The version of record may be found: https://doi.org/10.1016/j.econmod.2019.05.009

DOI

10.1016/j.econmod.2019.05.009

Persistent Identifier

https://archives.pdx.edu/ds/psu/32535

Available for download on Monday, February 01, 2021

Included in

Economics Commons

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