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Are Central Bank Independence Reforms Necessary for Achieving Low and Stable Inflation?

Author

Listed:
  • Daunfeldt, Sve-Olov

    (The Swedish Retail Institute (HUI))

  • Landström, Mats

    (Department of Economics, University of Gävle)

  • Rudholm, Niklas

    (Department of Economics)

Abstract

Using data on the occurrence of central bank independence (CBI) reforms in 131 countries during 1980-2005, we test whether they were important in reducing inflation and maintaining price stability. CBI reforms are found to have reduced inflation on average 3.31% when countries with historically high inflation rates are included. But countries with lower inflation have reduced it without institutional reforms granting central banks more independence, undermining the theoretical time-inconsistency case for CBI. There is furthermore no evidence that CBI reforms have helped reduce inflation variability.

Suggested Citation

  • Daunfeldt, Sve-Olov & Landström, Mats & Rudholm, Niklas, 2013. "Are Central Bank Independence Reforms Necessary for Achieving Low and Stable Inflation?," Umeå Economic Studies 863, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0863
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    More about this item

    Keywords

    inflation; institutional reform; monetary policy; time-inconsistency;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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