HUI Working Papers, HUI Research
Are Central Bank Independence Reforms Necessary for Achieving Low and Stable Inflation?
(), Mats Landström and Niklas Rudholm
Abstract: Using data on the occurence of central bank independence
(CBI) reforms in 131 countries during 1980-2005, we test whether they were
important in reducing inflation and maintaining price stability. CBI
reforms are found to have reduced inflation on average 3.31% when countries
with historically high inflation rates are included. But countries with
lower inflation have reduced it without institutional reforms granting
central banks more independence, undermining the theoretical
time-inconsistency case for CBI. There is furthermore no evidence that CBI
reforms have helped reduce inflation variability.
Keywords: inflation; institutional reform; monetary policy; time-inconsistency; (follow links to similar papers)
JEL-Codes: E52; E58; P48; (follow links to similar papers)
36 pages, July 6, 2013
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