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Central bank reform, liberalization and inflation in transition economies--an international perspective

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  • Cukierman, Alex
  • Miller, Geoffrey P.
  • Neyapti, Bilin

Abstract

This Paper develops extensive new indices of legal independence (Central Bank Independence, or CBI) for new central banks in 26 former socialist economies (FSEs). The indices reveal that central bank reform in the FSE during the 1990s has been quite ambitious. In spite of large price shocks, reformers in those countries have chosen to create central banks with levels of legal independence that are substantially higher, on average, than those of developed economies during the 1980s. The evidence in the Paper shows that CBI is unrelated to inflation during the early stages of liberalization. But with sufficiently high and sustained levels of liberalization, and controlling for other variables, legal CBI and inflation are significantly and negatively related. These findings are consistent with the view that even high CBI cannot contain the initial powerful inflationary impact of removing price controls. But once the process of liberalization has gathered sufficient momentum legal independence becomes effective in reducing inflation. The Paper also presents evidence on factors that affect the choice of CBI and it examines the relation between inflation and CBI in a broader sample.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 49 (2002)
Issue (Month): 2 (March)
Pages: 237-264

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Handle: RePEc:eee:moneco:v:49:y:2002:i:2:p:237-264

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. S. Eijffinger & M. Van Keulen, 1995. "Central bank independence in another eleven countries," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 48(192), pages 39-81.
  2. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October.
  3. S. Eijffinger & M. Van Keulen, 1995. "Central bank independence in another eleven countries," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 48(192), pages 39-81.
  4. Neyapti, Bilin, 2001. "Central bank independence and economic performance in eastern Europe," Economic Systems, Elsevier, vol. 25(4), pages 381-399, December.
  5. Cukierman, A., 1996. "The Economics of Central Banking," Papers 36-96, Tel Aviv.
  6. Cukierman, A. & Webb, S., 1994. "Political Influence on the Central Bank : International Evidence," Discussion Paper 1994-100, Tilburg University, Center for Economic Research.
  7. 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.
  8. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  9. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152908, Tilburg University.
  10. Chris Melliss & Mark Cornelius, 1994. "New currencies in the Former Soviet Union: a recipe for hyperinflation or the path to price stability," Bank of England working papers 26, Bank of England.
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  12. Loungani, Prakash & Sheets, Nathan, 1997. "Central Bank Independence, Inflation, and Growth in Transition Economies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 381-99, August.
  13. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
  14. Conway, P, 1995. "Currency Proliferation : The Monetary Legacy of the Soviet Union," Princeton Studies in International Economics 197, International Economics Section, Departement of Economics Princeton University,.
  15. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  16. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  17. Eijffinger, S. & van Keulen, M., 1994. "Central Bank Independence in Another Eleven Countries," Papers 9494, Tilburg - Center for Economic Research.
  18. Eijffinger, S-C-W & de Haan, J, 1996. "The Political Economy of Central-Bank Independence," Princeton Studies in International Economics 19, International Economics Section, Departement of Economics Princeton University,.
  19. Hochreiter, Eduard & Rovelli, Riccardo & Winckler, Georg, 1996. "Central banks and seigniorage: A study of three economies in transition," European Economic Review, Elsevier, vol. 40(3-5), pages 629-643, April.
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  1. Central Bank Independence, Transparency, and Accountability
    by Guest Author in the big picture on 2010-05-31 12:30:15
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