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Inflation, Central Bank Independence and the Legal System

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  • Bernd Hayo

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  • Stefan Voigt

    ()

Abstract

We argue that a higher degree of de facto independence of the legal system from the other government branches as well as public trust in the legal system may reduce the average inflation record of countries through a direct and an indirect channel. The direct channel works by affecting potential output, while the indirect channel helps to increase the de facto independence of the central bank. In the empirical section of the paper, we present evidence in favor of both channels in a sample containing both industrial and Third World countries. A model that contains legal trust in addition to de jure central bank independence, checks and balances within government, and openness can explain 60% of the variation in the logarithm of the inflation rate.

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Bibliographic Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 02-2005.

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Length: 29 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:icr:wpicer:02-2005

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Keywords: Judicial Independence; Legal Trust; Central Bank Independence; Inflation;

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References

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  1. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers 615, Stockholm - International Economic Studies.
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  10. Bernd Hayo & Stefan Voigt, 2003. "Explaining de facto judicial independence," Law and Economics 0306001, EconWPA.
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Cited by:
  1. Kai Hielscher & Gunther Markwardt, 2011. "The Role of Political Institutions for the Effectiveness of Central Bank Independence," CESifo Working Paper Series 3396, CESifo Group Munich.
  2. Mark Mietzner & Dirk Schiereck, 2011. "Staatsfonds als Ankerinvestoren: Eine Note zum Einstieg von Aabar bei Daimler," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(1), pages 92-100, 02.
  3. Tuesta Vicente, 2007. "Independencia Legal y Efectiva del Banco Central de Reserva del Perú," Working Papers 2007-012, Banco Central de Reserva del Perú.
  4. Marc Quintyn, 2009. "Independent agencies: more than a cheap copy of independent central banks?," Constitutional Political Economy, Springer, vol. 20(3), pages 267-295, September.
  5. Berggren, Niclas & Daunfeldt, Sven-Olof & Hellström, Jörgen, 2012. "Social Trust and Central-Bank Independence," Working Paper Series 920, Research Institute of Industrial Economics.

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