Long run inflation: persistence and central bank independence

Angelos Athanasopoulos, Donato Masciandaro and Davide Romelli

No 25237, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: This paper provides novel evidence of the long-run effects of central bank independence on inflation. We show that improvements in central bank independence have a much larger impact on inflation in the long run compared to the short run. Contrary to most of the previous literature, our results also show that the long-run effects of central bank independence on inflation are larger in developing countries. We find similar effects using linear and instrumental variable local projection methods. Finally, we show that central bank independence also reduces inflation persistence, reinforcing the effectiveness of monetary policy.

Keywords: central bank design; central bank independence; inflation; persistence (search for similar items in EconPapers)
JEL-codes: E31 E5 E52 E58 (search for similar items in EconPapers)
Pages: 52
Date: 2025
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