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Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean

  • Jácome, Luis I.
  • Vázquez, Francisco

This paper explores the effects of central bank independence (CBI) on inflation in a sample of 24 Latin American and Caribbean countries during 1985-2002. Using panel regressions, the paper finds a negative relationship between CBI and inflation. This result holds for three alternative measures of legal CBI, as well as for a measure of effective CBI, after controlling for international inflation, banking crises, and exchange rate regimes. However, the result is not entirely robust to the inclusion of an indicator of structural reforms that typically accompany changes in central bank legislation. In addition, evidence of causal relationship running from CBI to inflation is only supported by the results associated with the measure of effective CBI.

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Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 24 (2008)
Issue (Month): 4 (December)
Pages: 788-801

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Handle: RePEc:eee:poleco:v:24:y:2008:i:4:p:788-801
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505544

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