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The Difference Between De Jure and De Facto Central Bank Independence
Dalarna University, School of Technology and Business Studies, Economics.
2014 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

In recent decades, many central banks of the world over have been made independent. This paper empirically analyzes the difference between de jure and de facto independence; examining the concept of central bank independence (CBI) and with a focus on social trust, and the effectiveness of these two variables with regard to reducing the rate of inflation. Countries are grouped into four categories in line with Arnone et al’s (2007) index. The categories are i. All countries, ii. Advanced countries, iii. Emerging countries and iv. Developing countries. The results are obtained by simple correlation and the ordinary least square (OLS) regression analysis. The results indicate that both CBI and social trust have a significant effect on inflation in all countries while social trust also has a significant effect on inflation in advanced countries to reduce inflation. It seems social trust plays a more critical role than CBI in affecting inflation. Developing countries with high levels of social-trust usually also have fewer independent central banks, which could be an indication that such countries feel no need to implement CBI-reforms. For more developed countries, it appears trust is not as important for the level of CBI. That being said, in low-trust countries, social trust does not seem to have any effect.

Place, publisher, year, edition, pages
2014.
Keywords [en]
Central Bank Independence, Reforms, De Jure and De Facto, Inflation, Social Trust, Time-inconsistency, Monetary Policy, Credibility.
National Category
Economics
Identifiers
URN: urn:nbn:se:du-16325OAI: oai:DiVA.org:du-16325DiVA, id: diva2:762727
Available from: 2014-11-12 Created: 2014-11-12 Last updated: 2014-11-12Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • chicago-author-date
  • chicago-note-bibliography
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf