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

Sven-Olov Daunfeldt, Mats Landström () and Niklas Rudholm ()
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Mats Landström: Department of Economics, University of Gävle, Postal: SE-801 76 Gävle, Sweden
Niklas Rudholm: Department of Economics, Postal: Dalarna University, SE-781 88 Borlänge, Sweden

No 863, Umeå Economic Studies from Umeå University, 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.

Keywords: inflation; institutional reform; monetary policy; time-inconsistency (search for similar items in EconPapers)
JEL-codes: E52 E58 P48 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-08-13
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Working Paper: Are Central Bank Independence Reforms Necessary for Achieving Low and Stable Inflation? (2013)
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