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Central Bank Independence, Inflation, and Growth in Transition Economies

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Author Info
Loungani, Prakash
Sheets, Nathan

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Abstract

This paper documents two empirical relationships that have emerged as the former communist countries have taken steps to transform their economies. First, data from a sample of twelve transition economies suggest that increased central bank independence (CBI) is correlated with lower inflation rates. This CBI-inflation correlation is not well explained by initial economic conditions and persists after controlling for fiscal performance and the overall quality of economic reforms. Second, across a larger set of twenty-five transition economies, there is a strong and robust negative relationship between inflation and subsequent real GDP growth. Inflation's adverse effect on investment appears to be one significant channel through which the relationship between inflation and growth arises. Copyright 1997 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 29 (1997)
Issue (Month): 3 (August)
Pages: 381-99
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Handle: RePEc:mcb:jmoncb:v:29:y:1997:i:3:p:381-99

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  7. Ramon Moreno, 1994. "Explaining Asia's low inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Nov 4. [Downloadable!]
  8. Steven Phillips & Vincent Koen, 1992. "Price Liberalization in Russia: The Early Record," IMF Working Papers 92/92, International Monetary Fund.
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  11. Stanley Fischer & Franco Modigliani, 1978. "Towards an understanding of the real effects and costs of inflation," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 114(4), pages 810-833, December. [Downloadable!] (restricted)
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  12. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Working Papers in Applied Economic Theory 94-05, Federal Reserve Bank of San Francisco.
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  13. Vincent Koen & Michael Marrese, 1995. "Stabilization and Structural Change in Russia, 1992-94," IMF Working Papers 95/13, International Monetary Fund.
  14. 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. [Downloadable!] (restricted)
  15. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-06, May.
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  17. 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. [Downloadable!] (restricted)
  18. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc. [Downloadable!]
  19. Guy Debelle, 1996. "Central Bank Independence: A Free Lunch?," IMF Working Papers 96/1, International Monetary Fund.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank. [Downloadable!]
  2. Marcus Miller & Lei Zhang, 1995. "Hyperinflation and stabilization: Cagan revisited," International Finance Discussion Papers 529, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  3. Gillman, Max & Nakov, Anton, 2005. "Granger Causality of the Inflation-Growth Mirror in Accession Countries," CEPR Discussion Papers 4845, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Eva Gutiérrez, 2004. "Inflation Performance and Constitutional Central Bank Independence. Evidence from Latin America and the Caribbean," Economia Mexicana NUEVA EPOCA, , vol. 0(2), pages 255-287, July-Dece. [Downloadable!]
  5. Lucio Vinhas de Souza, 2002. "Integrated monetary and exchange rate frameworks: are there empirical differences?," Bank of Estonia Working Papers 2002-2, Bank of Estonia, revised 12 Oct 2002. [Downloadable!]
  6. Korhonen, Iikka, 1999. "Currency Boards in the Baltic Countries: What Have We Learned?," BOFIT Discussion Papers 6/1999, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
    Other versions:
  7. Stefan Krause & Felix Rioja, 2006. "Financial Development and Monetary Policy Efficiency," Emory Economics 0613, Department of Economics, Emory University (Atlanta). [Downloadable!]
  8. Eva Gutierrez, 2003. "Inflation Performance and Constitutional Central Bank Independence: Evidence From Latin America and the Caribbean," IMF Working Papers 03/53, International Monetary Fund. [Downloadable!]
  9. Roberto A. De Santis & Michele Ca'Zorzi, 2003. "The admission of accession countries to an enlarged monetary union: a tentative assessment," Working Paper Series 216, European Central Bank. [Downloadable!]
  10. Stefan Krause & Fabio Mendez, 2005. "Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis," Emory Economics 0501, Department of Economics, Emory University (Atlanta). [Downloadable!]
    Other versions:
  11. Luis Jácome & Francisco Vázquez, 2005. "Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean," Macroeconomics 0508011, EconWPA. [Downloadable!]
    Other versions:
  12. Jacob De Haan & Helge Berger & Erik Van Fraassen, 2001. "How to Reduce Inflation: An Independent Central Bank or A Currency Board? The Experience of the Baltic Countries," LICOS Discussion Papers 9601, LICOS - Centre for Institutions and Economic Performance, K.U.Leuven. [Downloadable!]
    Other versions:
  13. Hasan , Iftekhar & Mester, Loretta, 2008. "Central bank institutional structure and effective central banking: cross-country empirical evidence," Research Discussion Papers 29/2008, Bank of Finland. [Downloadable!]
    Other versions:
  14. Aleksandra Maslowska, 2007. "Discussion on the Inconsistency of Central Bank Independence Measures," Discussion Papers 21, Aboa Centre for Economics. [Downloadable!]
  15. Alejandro Simone & Alex Segura-Ubiergo & Sanjeev Gupta, 2006. "New Evidence on Fiscal Adjustment and Growth in Transition Economies," IMF Working Papers 06/244, International Monetary Fund. [Downloadable!]
  16. Agustin Carstens & Luis I. Jacome H., 2005. "Latin American Central Bank Reform: Progress and Challenges," Macroeconomics 0509022, EconWPA. [Downloadable!]
    Other versions:
  17. Cukierman, A. & Miller, G.P. & Neyapti, B., 2000. "Central bank reform, liberalization and inflation in transition economies : an international perspective," Discussion Paper 106, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  18. Self, Sharmistha & Grabowski, Richard, 2006. "The Asian Financial Crisis: Impact on Human Development," Review of Applied Economics, Review of Applied Economics, vol. 2(2). [Downloadable!]
  19. Dvorsky, Sandra, 2000. "Measuring Central Bank Independence in Selected Transition Countries and the Disinflation Process," BOFIT Discussion Papers 13/2000, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
  20. Agustín Carstens, & Luis I. Jácome, 2005. "The 1990s Institutional Reform of Monetary Policy in Latin America," Working Papers Central Bank of Chile 343, Central Bank of Chile. [Downloadable!]
  21. Lúcio Vinhas de Souza, 2002. "Integrated Monetary and Exchange Rate Frameworks," Tinbergen Institute Discussion Papers 02-054/2, Tinbergen Institute. [Downloadable!]
  22. Aleksandra Maslowska, 2008. "Quest for the best: How to measure central bank independence and show its relation with inflation?," Discussion Papers 37, Aboa Centre for Economics. [Downloadable!]
  23. Joan Costa Font & Joan Batalla Bejerano, 1998. "Eastern European Countries and the EMU: departure situation and transition strategies," ERSA conference papers ersa98p192, European Regional Science Association. [Downloadable!]
  24. Athanasios Papadopoulos & Giuseppe Diana & Moise Sidiropoulos, 2005. "Central Bank Reform and Inflation Dynamics in the Transition Economies theory and some evidence," Money Macro and Finance (MMF) Research Group Conference 2005 58, Money Macro and Finance Research Group. [Downloadable!]
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