Central bank independence and low inflation: who leads the dance?

Itai Agur

Applied Economics Letters, 2021, vol. 28, issue 6, 477-481

Abstract: One strand of empirical literature finds that central bank independence (CBI) lowers inflation. Another strand of literature finds that low inflation is a key determinant of reform towards increased CBI. This paper investigates whether either variable can be identified as a first instigator. Using the largest CBI dataset to date, this paper applies rolling balanced-panel Granger causality tests between CBI reform and changes in inflation. For advanced economies, CBI reform is found to significantly lead disinflation, while there is no Granger causality in the opposite direction. Instead, among emerging and developing economies, CBI reforms tend to follow quickly upon disinflation episodes, while the lags from CBI reform to disinflation are long. An interpretation is that in emerging and developing economies CBI reform often followed on crises that involved high inflation, whereas in various advanced economies a shift in thinking about central banking first triggered CBI reform.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2020.1761525 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:28:y:2021:i:6:p:477-481

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2020.1761525

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().