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Inflation, Central Bank Independence, and the Legal System

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  • Bernd Hayo
  • Stefan Voigt

Abstract

We argue that a higher degree of de facto independence of the legal system from other government branches as well as strong public trust in the working of the legal system may reduce the average inflation rate of countries through two channels: by lowering transaction costs in the economy and by strengthening de facto central bank independence. In the empirical section of the paper, we present evidence in favour of both channels after controlling for other influences in a sample containing both developed and less-developed countries.

Suggested Citation

  • Bernd Hayo & Stefan Voigt, 2008. "Inflation, Central Bank Independence, and the Legal System," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 751-777, December.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200812)164:4_751:icbiat_2.0.tx_2-l
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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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