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Inflation, Central Bank Independence, and the Legal System

  • Bernd Hayo
  • Stefan Voigt

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.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 164 (2008)
Issue (Month): 4 (December)
Pages: 751-777

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200812)164:4_751:icbiat_2.0.tx_2-l
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  23. Bernd Hayo & Carsten Hefeker, 2001. "Do We Really Need Central Bank Independence? A Critical Re- examination," Macroeconomics 0103006, EconWPA.
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