Inflation (Finance) -- Econometric models, Monetary policy -- Econometric models Banks and banking, Central -- Econometric models
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.
Locate the Document
Garriga, A. C., & Rodriguez, C. M. (2020). More effective than we thought: Central bank independence and inflation in developing countries. Economic Modelling, 85, 87-105.
Available for download on Monday, February 01, 2021