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Central Bank Independence and Transparency

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  • Christopher W. Crowe
  • Ellen E. Meade

Abstract

This paper examines the current level of central bank independence (CBI) and transparency in a broad sample of countries using newly constructed measures, and looks at the evolution in both measures from an earlier time period. Increases in CBI have tended to occur in more democratic countries and in countries with high levels of past inflation. More independent central banks in turn tend to be more transparent, while transparency is also positively correlated with measures of national institutional quality. Exploiting the time dimension of our data to eliminate country fixed effects and using instrumental variable estimation to overcome endogeneity concerns, we present evidence that greater CBI is associated with lower inflation. We also find that enhanced transparency practices are associated with the private sector making greater use of information provided by the central bank.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/119.

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Length: 28
Date of creation: 01 May 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/119

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Related research

Keywords: Central bank autonomy; inflation; central bank; monetary policy; inflation targeting; monetary fund; monetary economics; price stability; lower inflation; inflation tax; fall in inflation; monetary institutions; monetary policy decision; annual inflation; monetary regimes; inflation data; effect of inflation; intermediate monetary target; inflation rate; monetary authority; monetary policy frameworks; money balances; average inflation; inflation forecasts; actual inflation; low inflation; monetary target; monetary policy framework; monetary transmission mechanism; monetary policy regimes; inflation performance; price level; monetary policy transparency; monetary transmission; macroeconomic performance;

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References

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