EMPIRICAL APPROACH UPON THE RELATIONSHIP BETWEEN CENTRAL BANK INDEPENDENCE AND INFLATION IN DEVELOPED AND DEVELOPING COUNTRIES

Dumiter Florin Cornel ()
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Dumiter Florin Cornel: Vasile Goldis Western University of Arad, Economic Sciences

Annals of Faculty of Economics, 2012, vol. 1, issue 1, 803-808

Abstract: Central bank independence has become over time one of the key concepts in modern theory and policy. Most economists agree that central bank independence is desirable because it helps achieving and maintaining the long -term goal of price stability. Although one might think about alternative mechanisms to reach lower inflation rates, central bank independence is clearly the most often recomended. The empirical trends upon a more independent central bank with a more transparent and accountable monetary policy regime has emerged in economic literature regarding central banking and monetary economics. In recent years, starting from the Maastricht Treaty central bank independence has become the panacea of the monetary economics and monetary policy approaches. Moreover it is important to analyze and assess the impact of this key issue in central banking upon the inflation performances of the central banks. In this article we provide a qualitative overview upon some recent trends in the central bank independence field: does it still matter? How can be it evaluate and stress itâ€(tm)s impact upon macroeconomic performances, especially upon inflation. As we can observe in the economic literature upon central bank independence there are several approaches to use several indices in order to measure this qualitative and quatitative institutional variables. The most important debate is to eliminate the gap between de jure and de facto independence in order to flatten the measuring of institutional aspects, the legal implication, the constitutional facts and the actual practices of the central banks. Finally, we suggest that according to the new index for measuring central bank independence and inflation targeting index we can evaluate more accurate the degree of the de jure and de facto independence and stress the impact on inflation performance with a case study for ten developed countries and ten developing countries.

Keywords: inflation targeting; central bank transparency; communication strategy; decision-making process; inflation level (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Date: 2012
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