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Central Bank Independence and Inflation: An Empirical Analysis

Daniel Chiquiar () and Raul Ibarra

No 2019-18, Working Papers from Banco de México

Abstract: This paper analyzes the relationship between central bank independence and inflation in a panel of 182 countries for the period from 1970 to 2018. To measure the degree of independence, two measures are used, the Garriga (2016) index, constructed from the laws and internal regulations of central banks, and the Dreher et al. (2008) index, based on the turnover rate of governors. The results indicate that greater central bank independence is associated with lower levels of inflation, both for highincome countries and for low and middle-income countries. There is also a negative relationship between inflation volatility and central bank independence, although the results are statistically significant only when using the full sample of countries. The results are robust to the use of the two alternative measures of Independence and to the use of two alternative approaches to avoid simultaneity.

Keywords: Central Bank Independence; Inflation (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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