Inflation, Central Bank Independence and the Legal System
AbstractWe 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 InfoPaper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 02-2005.
Length: 29 pages
Date of creation: Jan 2005
Date of revision:
Judicial Independence; Legal Trust; Central Bank Independence; Inflation;
Other versions of this item:
- Bernd Hayo & Stefan Voigt, 2008. "Inflation, Central Bank Independence, and the Legal System," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 751-777, December.
- Bernd Hayo & Stefan Voigt, 2005. "Inflation, Central Bank Independence and the Legal System," Money Macro and Finance (MMF) Research Group Conference 2005 57, Money Macro and Finance Research Group.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
- 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-2005-04-16 (All new papers)
- NEP-CBA-2005-04-16 (Central Banking)
- NEP-LAW-2005-04-16 (Law & Economics)
- NEP-MON-2005-04-16 (Monetary Economics)
- NEP-REG-2005-04-16 (Regulation)
- NEP-SEA-2005-04-16 (South East Asia)
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