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The link between central bank independence and inflation in Central and Eastern Europe: are the results sensitive to endogeneity issue omitted dynamics and subjectivity bias?

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  • Goran Petrevski
  • Jane Bogoev
  • Bruno S. Sergi

Abstract

This paper provides an empirical analysis of the association between central bank independence (CBI) and inflation for 17 Central and Eastern European economies from 1990 to 2009. We employ a dynamic panel data model estimated with a "system" generalized method of moments, which incorporates several control variables as well as accounts for the subjectivity bias in the construction and interpretation of CBI indexes. The main finding of our empirical research is that, after introducing dynamics in the empirical model and controlling for the effects of other macroeconomic and institutional variables, the usual significant and negative relationship between CBI and inflation disappears.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 34 (2012)
Issue (Month): 4 (July)
Pages: 611-652

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Handle: RePEc:mes:postke:v:34:y:2012:i:4:p:611-652

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: central bank independence; dynamic panel data models; inflation; subjectivity bias; transition economies;

References

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