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A Revisit of the Relation between Central Bank Independence and Inflation

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  • Lin, Hsin-Yi

Abstract

Conventional wisdom argues that the relation between central bank independence (CBI) and inflation is negative. However, empirical studies based upon regressing inflation rates on CBI tend to reject this hypothesis and show that there is no negative relationship. This article investigates the effect of CBI on inflation by quantile regression. The empirical result shows that the relation could be negative or positive for different quantiles of inflation. Quantile regression provides a method for investigating the relation completely between CBI and inflation.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 30398.

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Date of creation: 15 Aug 2009
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Publication status: Published in The Empirical Economics Letters 2.9(2010): pp. 139-143
Handle: RePEc:pra:mprapa:30398

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Keywords: Central Bank Independence; Inflation; Quantile Regression.;

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  1. Temple, Jonathan, 1998. "Central bank independence and inflation: good news and bad news," Economics Letters, Elsevier, vol. 61(2), pages 215-219, November.
  2. King, David & Ma, Yue, 2001. "Fiscal decentralization, central bank independence, and inflation," Economics Letters, Elsevier, vol. 72(1), pages 95-98, July.
  3. Brumm, Harold J, 2000. "Inflation and Central Bank Independence: Conventional Wisdom Redux," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(4), pages 807-19, November.
  4. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  5. Marta Campillo & Jeffrey A. Miron, 1996. "Why Does Inflation Differ Across Countries?," NBER Working Papers 5540, National Bureau of Economic Research, Inc.
  6. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
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