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Are central bank independence reforms necessary for achieving low and stable inflation?
Dalarna University, School of Technology and Business Studies, Economics.
Dalarna University, School of Technology and Business Studies, Economics.
Dalarna University, School of Technology and Business Studies, Economics.
2013 (English)Report (Other academic)
Abstract [en]

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.

Place, publisher, year, edition, pages
HUI Research , 2013. , 36 p.
Series
HUI Working Papers, 95
National Category
Economics
Research subject
Komplexa system - mikrodataanalys
Identifiers
URN: urn:nbn:se:du-13537OAI: oai:DiVA.org:du-13537DiVA: diva2:681075
Available from: 2013-12-19 Created: 2013-12-19 Last updated: 2015-08-03Bibliographically approved
In thesis
1. Determinants and effects of central bank independence reforms
Open this publication in new window or tab >>Determinants and effects of central bank independence reforms
2013 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of four empirically oriented papers on central bank independence (CBI) reforms.   

Paper [1] is an investigation of why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to control the economy. A new data-set, including the possible occurrence of CBI-reforms in 132 countries during 1980-2005, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country had been characterized by high variability in inflation and if they faced a high probability of being replaced. No such effects were found for OECD countries.   

Paper [2], using a difference-in-difference approach, studies whether CBI reform matters for inflation performance. The analysis is based on a dataset including the possible occurrence of CBI-reforms in 132 countries during the period of 1980-2005. CBI reform is found to have contributed to bringing down inflation in high-inflation countries, but it seems unrelated to inflation performance in low-inflation countries.   

Paper [3] investigates whether CBI-reforms are important in reducing inflation and maintaining price stability, using a random-effects random-coefficients model to account for heterogeneity in the effects of CBI-reforms on inflation. CBI-reforms are found to have reduced inflation on average by 3.31 percent, but the effect is only present when countries with historically high inflation rates are included in the sample. Countries with more modest inflation rates have achieved low inflation without institutional reforms that grant central banks more independence, thus undermining the time-inconsistency theory case for CBI. There is furthermore no evidence that CBI-reforms have contributed to lower inflation variability   

Paper [4] studies the relationship between CBI and a suggested trade-off between price variability and output variability using data on CBI-levels, and data the on implementation dates of CBI-reforms. The results question the existence of such a trade-off, but indicate that there may still be potential gains in stabilization policy from CBI-reforms.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2013
Series
Umeå economic studies, ISSN 0348-1018 ; 869
Keyword
Monetary policy, institutional reform, central banking, price stability, political economy, delegation, institutional economics, inflation, time-inconsistency, accountability
National Category
Economics
Research subject
Komplexa system - mikrodataanalys
Identifiers
urn:nbn:se:du-13535 (URN)978-91-7459-768-4 (ISBN)
Public defence
Samhällsvetarhuset, sal S 205 h, Umeå universitet, Umeå (English)
Opponent
Supervisors
Available from: 2013-12-19 Created: 2013-12-19 Last updated: 2015-08-03Bibliographically approved

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CiteExportLink to record
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Citation style
  • apa
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  • nn-NB
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  • Other locale
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Output format
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