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Central bank independence and stock market returns in developed countries

Maria Teresa Garcia () and Pedro Miguel Mendes Rosa Costa

International Review of Applied Economics, 2019, vol. 33, issue 3, 335-352

Abstract: Central bank independence (CBI) is seen in the literature and by policy-makers as being important for achieving stability of inflation and long-term welfare. However, relatively few studies directly consider the relationship between CBI and stock market returns. Using a set of 21 developed countries, over a period of 20 years, and the Morgan Stanley Capital International indices, we test the impact caused by the levels of independence of countries’ central banks. The results lead us to conclude that the ‘free lunch’ hypothesis behind CBI cannot be rejected when its impact on stock market returns is considered.

Date: 2019
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DOI: 10.1080/02692171.2018.1493093

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Handle: RePEc:taf:irapec:v:33:y:2019:i:3:p:335-352