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Central Bank independence and inflation: Evidence from emerging countries

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  • Chrigui, Zouhair
  • Boujelbene, Younes
  • Mhamdi, Ghrissi

Abstract

This paper is mainly devoted to an empirical study of the legal and real independence of the Tunisian Central Bank as well as to estimating the correlation between the inflationary bias and the real independence of the emerging countries while applying new data sources. Our contribution consists, particularly, in measuring the indicators of legal and real Central Bank independence through applying, respectively, the Jacome (2001) and Cukierman's (1992) methods. In a second part, we are carrying out a descriptive and comparative analysis of inflation relative to the Maghreb countries designed to check the inflationary bias reduction. However, the third part is consecrated to the study of correlation between the real independence and the inflationary bias, performed over a sample of emerging countries with a panel estimation ranging over the period 1971-2004. Our results conform those achieved by Cukierman (1992), showing an acceptable proxy of the real and legal independence as well as the beneficial effects stemming from inflation. These findings conform those of De Haan (2007) and confirm a positive and non-significant correlation between real independence and inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 33 (2011)
Issue (Month): 3 (May)
Pages: 453-469

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Handle: RePEc:eee:jpolmo:v:33:y:2011:i:3:p:453-469

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Central Bank independence Inflationary bias Legal independence indicator Turnover Panel;

References

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  1. Manfred Gärtner, 1997. "Central Bank Independence and the Sacrifice Ratio: The Dark Side of the Force," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(III), pages 513-538, September.
  2. Alex Cukierman, 2006. "Central Bank Independence and Monetary Policymaking Institutions: Past, Present, and Future," Working Papers Central Bank of Chile 360, Central Bank of Chile.
  3. J. A. Hausman, 1976. "Specification Tests in Econometrics," Working papers 185, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Christopher Crowe & Ellen E. Meade, 2007. "The Evolution of Central Bank Governance around the World," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 69-90, Fall.
  5. Prakash Loungani & Nathan Sheets, 1995. "Central bank independence, inflation and growth in transition economies," International Finance Discussion Papers 519, Board of Governors of the Federal Reserve System (U.S.).
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  7. Posen, Adam, 1998. "Central Bank Independence and Disinflationary Credibility: A Missing Link?," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 335-59, July.
  8. Alicia García Herrero & Pedro del Río, 2003. "Financial stability and the design of monetary policy," Banco de Espa�a Working Papers 0315, Banco de Espa�a.
  9. Dreher, Axel & Sturm, Jan-Egbert & de Haan, Jakob, 2008. "Does high inflation cause central bankers to lose their job? Evidence based on a new data set," European Journal of Political Economy, Elsevier, vol. 24(4), pages 778-787, December.
  10. Oosterloo, Sander & de Haan, Jakob, 2004. "Central banks and financial stability: a survey," Journal of Financial Stability, Elsevier, vol. 1(2), pages 257-273, December.
  11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  12. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  13. Marta Campillo & Jeffrey A. Miron, 1997. "Why Does Inflation Differ across Countries?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 335-362 National Bureau of Economic Research, Inc.
  14. Udaibir S. Das & Marc Quintyn & Kina Chenard, 2004. "Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis," IMF Working Papers 04/89, International Monetary Fund.
  15. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
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Cited by:
  1. Perera, Anil & Ralston, Deborah & Wickramanayake, Jayasinghe, 2013. "Central bank financial strength and inflation: Is there a robust link?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 399-414.

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