Central bank independence, inflation and growth in transition economies
In this paper, we document two empirical relationships that have emerged as the former communist countries have taken steps to transform their economies from command systems to market-based systems. First, increased central bank independence has tended to improve inflation performance. Second, high inflation has adversely affected real activity. More specifically, in the first section of this paper, we develop indices of central bank independence (CBI) for twelve transition economies and examine the relationship between CBI and inflation performance across these countries. Statistical evidence suggests that the transition economies with more independent central banks have achieved lower inflation than their counterparts. The second section of this paper studies the relationship between inflation and growth in twenty-six transition economies. We present econometric evidence indicating that reducing inflation helps stabilize economic activity, following the sharp output declines that occur during the initial stages of transition. The paper conc1udes that establishing an independent central bank is a concrete institutional reform that may reduce inflation and thus facilitate economic growth.
|Date of creation:||1995|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/ifdp/order.htm|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Barro, 1995.
"Inflation and Economic Growth,"
NBER Working Papers
5326, National Bureau of Economic Research, Inc.
- Jon Faust, 1992. "Whom can we trust to run the Fed? Theoretical support for the founders' views," International Finance Discussion Papers 429, Board of Governors of the Federal Reserve System (U.S.).
- Stanley Fischer, 1995. "The Unending Search for Monetary Salvation," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 275-298 National Bureau of Economic Research, Inc.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Vincent Koen & Steven T Phillips, 1992. "Price Liberalization in Russia; The Early Record," IMF Working Papers 92/92, International Monetary Fund.
- Alex Cukierman, 1993. "Central Bank Independence, Political Influence and Macroeconomic Performance: a Survey of Recent Development," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 30(91), pages 271-292.
- Guy Debelle & Stanley Fischer, 1994.
"How independent should a central bank be?,"
Conference Series ; [Proceedings],
Federal Reserve Bank of Boston, vol. 38, pages 195-225.
- Ramon Moreno, 1994. "Explaining Asia's low inflation," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov4.
- Vincent Koen & Michael Marrese, 1995. "Stabilization and Structural Change in Russia, 1992-94," IMF Working Papers 95/13, International Monetary Fund.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-06, May.
- Alex Cukierman, 1992.
"Central Bank Strategy, Credibility, and Independence: Theory and Evidence,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262031981, March.
- Cukierman Alex, 1992. "Central Bank Strategy, Credibility, And Independance: Theory And Evidence," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 3(4), pages 10, December.
- Stanley Fischer & Franco Modigliani, 1978.
"Towards an understanding of the real effects and costs of inflation,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 114(4), pages 810-833, December.
- Stanley Fischer & Franco Modigliani, 1978. "Towards An Understanding of the Real Effects and Costs of Inflation," NBER Working Papers 0303, National Bureau of Economic Research, Inc.
- Posen, Adam, 1998.
"Central Bank Independence and Disinflationary Credibility: A Missing Link?,"
Oxford Economic Papers,
Oxford University Press, vol. 50(3), pages 335-59, July.
- Adam S. Posen, 1995. "Central bank independence and disinflationary credibility: a missing link?," Staff Reports 1, Federal Reserve Bank of New York.
- Jakob De Haan & Jan Egbert Sturm, 1992.
"The Case for Central Bank Independence,"
Banca Nazionale del Lavoro Quarterly Review,
Banca Nazionale del Lavoro, vol. 45(182), pages 305-327.
- Guy Debelle, 1996. "Central Bank Independence; A Free Lunch?," IMF Working Papers 96/1, International Monetary Fund.
- Cukierman, Alex & Kalaitzidakis, Pantelis & Summers, Lawrence H. & Webb, Steven B., 1993. "Central bank independence, growth, investment, and real rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 95-140, December.
- Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
- Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
- Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
- Gregory W. Huffman, 1997.
"An Equilibrium Analysis of Central Bank Independence and Inflation,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 30(4), pages 943-58, November.
- Huffman, Gregory W., 1995. "An equilibrium analysis of central bank independence and inflation," Working Papers 9501, Federal Reserve Bank of Dallas.
- Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:519. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.