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

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  • Jácome, Luis I.
  • Vázquez, Francisco

Abstract

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.

Suggested Citation

  • Jácome, Luis I. & Vázquez, Francisco, 2008. "Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean," European Journal of Political Economy, Elsevier, vol. 24(4), pages 788-801, December.
  • Handle: RePEc:eee:poleco:v:24:y:2008:i:4:p:788-801
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    Keywords

    E42 E58 Central bank independence Inflation Structural reform Latin America;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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