Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean

Luis Jácome and Francisco Vázquez
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Luis Jácome: International Monetary Fund
Francisco Vázquez: International Monetary Fund

Macroeconomics from EconWPA

Abstract: This paper reviews central bank legislation in 24 countries in Latin America and the Caribbean during the 1990s. Using panel regressions, the paper finds a negative relationship between legal central bank independence (CBI) and inflation. This result holds for three alternative measures of CBI, and after controlling for international inflation, banking crises, and exchange regimes. The result is also robust to the inclusion of a broader indicator of structural reforms that usually go along with changes in central bank legislation, illustrating the complementary nature of various aspects of economic reform. The paper fails, however, to find a causal relationship running from CBI to inflation.

Keywords: Central bank independence; inflation; Latin America (search for similar items in EconPapers)
JEL-codes: E42 E58 (search for similar items in EconPapers)
Date: 2005-08-09
Note: Type of Document - pdf; pages: 40
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