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Central Bank Independence and Inflation: The case of Greece

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This paper investigates the argument for Central Bank Independence (CBI) in the case of Greece. Using a time series approach and the last data available before Greece joined the EMU, the hypothesis that central bank independence is important for controlling inflation is examined. Employing two indices, which serve as proxies for CBI, LegalCBI and TOR, the inverse relationship between CBI and inflation was confirmed. The interactions between the variability of inflation and CBI were also investigated. Furthermore, evidence was found to suggest that the rate of turnover Granger causes inflation.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2005_7.

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Date of creation: Jul 2005
Date of revision: Jul 2005
Handle: RePEc:lbo:lbowps:2005_7

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Keywords: Central Bank Independence; Inflation; Greece.;

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  1. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
  2. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1519-1554, November.
  3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 101-121.
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  6. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, World Bank Group, vol. 6(3), pages 353-98, September.
  7. Otero, Jesus & Ramirez, Manuel, 2006. "Inflation before and after central bank independence: The case of Colombia," Journal of Development Economics, Elsevier, Elsevier, vol. 79(1), pages 168-182, February.
  8. Berger, Helge & de Haan, Jakob & Eijffinger, Sylvester C W, 2001. " Central Bank Independence: An Update of Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 3-40, February.
  9. George Bratsiotis, 2000. "Political parties and inflation in Greece: the metamorphosis of the Socialist Party on the way to EMU," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 7(7), pages 451-454.
  10. Cukierman, Alex, 1994. "Central Bank Independence and Monetary Control," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 104(427), pages 1437-48, November.
  11. Mangano, Gabriel, 1998. "Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 468-92, July.
  12. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics, EconWPA 0103006, EconWPA.
  13. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  14. Hayo, Bernd & Hefeker, Carsten, 2002. "Reconsidering central bank independence," European Journal of Political Economy, Elsevier, vol. 18(4), pages 653-674, November.
  15. Goodhart, Charles A E, 1994. "Game Theory for Central Bankers: A Report to the Governor of the Bank of England," Journal of Economic Literature, American Economic Association, vol. 32(1), pages 101-14, March.
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Cited by:
  1. Goran Petrevski & Jane Bogoev & Bruno S. Sergi, 2012. "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?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 34(4), pages 611-652, July.
  2. Jane Bogoev & Goran Petrevski & Bruno S. Sergi, 2012. "Investigating the Link Between Central Bank Independence and Inflation in Central and Eastern Europe," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 50(4), pages 78-96, July.
  3. Posso, Alberto & Tawadros, George B., 2013. "Does greater central bank independence really lead to lower inflation? Evidence from panel data," Economic Modelling, Elsevier, Elsevier, vol. 33(C), pages 244-247.
  4. Ojo, Marianne & Ayadi, Felix, 2013. "Central bank independence: monetary policies in selected jurisdictions (III)," MPRA Paper 45722, University Library of Munich, Germany.

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