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Dynamic central bank independence indices and inflation rate: A new empirical exploration

Marco Arnone and Davide Romelli

Journal of Financial Stability, 2013, vol. 9, issue 3, 385-398

Abstract: It has been argued that economies with more independent central banks experience lower inflation over time. In this paper we show that this relationship is sensitive to the methodology through which central bank independence indices are constructed. We stress the importance of employing dynamic central bank independence indices in two ways. First, we perform unit root tests with structural breaks to verify if the implementation of central bank reforms represents a structural break for the inflation rate dynamics. Second, we implement a panel data analysis.

Keywords: Central banking; Central bank independence; Political independence; Economic independence; Inflation; Structural breaks (search for similar items in EconPapers)
JEL-codes: E31 E50 E52 E58 G28 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1016/j.jfs.2013.03.002

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Handle: RePEc:eee:finsta:v:9:y:2013:i:3:p:385-398