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Independence of Central Banks in Nondemocratic Regimes: Implications for Price Stability

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  • Abeeb O. Olaniran

    (Centre for Econometrics & Applied Research, Ibadan, Nigeria; and Department of Economics, University of Pretoria, South Africa.)

  • Umar B. Ndako

    (Centre for Econometrics & Applied Research, Ibadan, Nigeria)

Abstract

This study examines the impact of central bank independence on inflation in nondemocratic regimes, with a specific focus on the differences between Islamic and nonIslamic groups. It utilizes nonstationary heterogeneous panels to estimate both the longrun and short-run responses of inflation to central bank independence. Additionally, it employs a panel smooth transition regression model to identify any potential threshold effects in this relationship. Our findings reveal an inverse relationship between central bank independence and inflation rates for both groups in the long run. Our result suggests that non-Islamic authoritarian countries may struggle more than Islamic ones to maintain price stability through interest rate channels, which could explain their increasing adoption of a zero interest rate policy. Furthermore, we find evidence of threshold effects that, if overlooked, could result in biased conclusions.

Suggested Citation

  • Abeeb O. Olaniran & Umar B. Ndako, 2025. "Independence of Central Banks in Nondemocratic Regimes: Implications for Price Stability," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 28(3), pages 333-348, October.
    • Handle: RePEc:idn:journl:v:28:y:2025:i:3a:p:333-348
    DOI: https://doi.org/10.59091/2460-9196.2571
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    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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