A Simple Test for the Degree of Central Bank Independence

Seong Hyeon Whang
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Seong Hyeon Whang: University of Inchon

Korean Economic Review, 2000, vol. 16, 125-148

Abstract: The optimal choice of the tax rate and the inflation rate framework is extended to develop a simple econometric test for the degree of central bank independence. Two models of ï¬ scal dominance associated with the optimal collection of seigniorage and the inflationary bias in the presence of ï¬ scal side distortions are developed. Empirical tests for the theoretical results are conducted with data from I7 OECD countries classifying these countries into three groups of optimal ï¬ scal and monetary policy regimes. The test results are consistent with the Bade~Parkin classiï¬ cation of the degree of central bank independence.

Keywords: Central Bank Independence; Seigniorage; Fiscal Dominance (search for similar items in EconPapers)
JEL-codes: E50 E60 (search for similar items in EconPapers)
Date: 2000
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