Monetary Policy and the Rule of Law
AbstractThe translation of legal independence into actual independence is primarily determined by the rule of law. Inspired by the economic growth literature, where the role of institutions already is incorporated, we introduce Institutional Quality Indicators that can be used as reasonable proxies for the rule of law in a country. This idea can be seen as an important extension of the existing empirical research about the relationship between inflation and the institutional design of monetary institutions. With the rule of law factor we will get a better expression of effective central bank independence. Transition economies like former socialist economies in Europe are interesting candidates for the examination of the relationship between the rate of inflation, central bank reforms and the transition process. Legal Transition Indicators will be used as proxy for the rule of law in these countries. The liberalization process seems to be an important condition for the effectiveness of legal central bank independence. With the Cumulative Liberalization Index we incorporate the liberalization process into our analysis.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3698.
Date of creation: Jan 2003
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Other versions of this item:
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-03-14 (All new papers)
- NEP-LAW-2003-03-14 (Law & Economics)
- NEP-MAC-2003-03-17 (Macroeconomics)
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- Alicia García Herrero & Pedro del Río, 2003. "Financial stability and the design of monetary policy," Banco de Espaï¿½a Working Papers 0315, Banco de Espa�a.
- Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.
- Aleksandra Maslowska, 2007. "Discussion on the Inconsistency of Central Bank Independence Measures," Discussion Papers 21, Aboa Centre for Economics.
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