Central bank independence and inflation revisited

Abstract

We re-examine the relationship between central bank independence (CBI), proxied by the central bank governor's turnover rate and an indicator based on central bank laws in place, and inflation using a random coefficient model with the Hildreth-Houck estimator for more than 100 countries in the period 1980 to 2005. We conclude that there exists no general significant negative relation between our indicators of central bank independence and inflation. Central bank independence has a significant effect only in a minority of the countries in our sample.

Fixed exchange rates, independent central banks and price stability in postcommunist countries: Conservatism and credibility

“…Consistent with the theoretical approach, the empirical section tests the effect of fixed exchange rates and independent central banks on quarterly money growth rates, inflation, and real interest rates. In recent work, Klomp and de Haan () find that central bank independence has a significant effect in less than 20% of the countries in their sample and suggest that future research identify circumstances when CBI matters. This article shows that, in postcommunist countries that are democratic and have a free press, increasing the independence of the central bank leads to more discipline (via lower rates of money growth) and more credibility (lower inflation controlling for money growth).…”

Does Government Ideology Matter in Monetary Policy? A Panel Data Analysis for OECD Countries

“…For this reason, we apply the inverse of a central bank independence indicator. Here, we use the overall index developed by Klomp and De Haan (2008) that is time-variant and takes on values between 0 and 1 (total CBI turnover). 12 Klomp and De Haan (2008) use the scores of Arnone et al (2007) and the assignment of the CBI values across the years by Acemoglu et al (2008).…”

“…Here, we use the overall index developed by Klomp and De Haan (2008) that is time-variant and takes on values between 0 and 1 (total CBI turnover). 12 Klomp and De Haan (2008) use the scores of Arnone et al (2007) and the assignment of the CBI values across the years by Acemoglu et al (2008). Moreover, they calculate CBI turnover on the basis of the data delivered by Dreher, Sturm and De Haan (2008).…”

The Politics of Central Bank Independence

“…The effect is strongest when a study focuses on OECD countries, the period 1970-1979, considers the labour market, and when the relation is estimated using a bivariate However, this evidence has been criticized by various authors, claiming that the results are sensitive with 8 respect to the measure of CBI used (see, for instance, Forder, 1996), the specification of the model (see, for instance, Posen, 1995;Campillo and Miron, 1997) or the inclusion of high-inflation observations (see, for instance, de Haan and Kooi, 2000). Klomp and de Haan (2010b) report that CBI only has a significant effect on inflation in a minority of the countries in their sample. !…”