Does greater central bank independence really lead to lower inflation? Evidence from panel data

Alberto Posso () and George B. Tawadros

Economic Modelling, 2013, vol. 33, issue C, 244-247

Abstract: It has long been held that central bank independence (CBI) from political control is a necessary requirement to curb inflation. In recent times, however, this long held belief has been challenged. Using a recently compiled panel data set on central bank independence measures, the proposition that greater CBI leads to lower inflation is tested, using latent variable analysis. The use of this alternative econometric technique, along with two additional indicators that capture more appropriately the degree of de facto independence, leads to empirical results that are highly supportive of the negative relationship between CBI and inflation, thereby restoring faith in the conventionally held wisdom, that greater CBI is needed to lower inflation.

Keywords: Inflation; Central bank independence; Latent variable analysis (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:244-247

DOI: 10.1016/j.econmod.2013.04.005

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