Journal Article10.2139/SSRN.1112026
Does Central Bank Independence Cause Low Inflation? A Sceptical View
Carsten Hefeker,Bernd Hayo +1 more
TL;DR: In this article, the authors present a number of arguments that question some aspects of the conventional view of central bank independence and argue CBI is neither necessary nor sufficient for reaching monetary stability.
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Abstract: In this survey, we present a number of arguments that question some aspects of the conventional view of central bank independence (CBI). We argue CBI is neither necessary nor sufficient for reaching monetary stability. First, CBI is just one potentially useful monetary policy design instrument among several. Second, while the relevant economic theories focus on the aspect of goal independence, in practice most central banks tend to be only instrument independent. Third, CBI should not be treated as an exogenous variable, but attention should be devoted to the question of why central banks are made independent. CBI is chosen by countries under specific circumstances, which are related to their legal, political, and economic systems. Fourth, in a number of empirical studies, researchers found CBI to be correlated with low inflation rates. By taking the endogeneity of CBI into account, however, there remains little reason to believe the correlation between CBI and low inflation tells us anything about causality.
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Citations
No single definition of central bank independence is right for all countries
TL;DR: In this paper, a new international data set covering over 100 countries for the period 1990-2004 is used to investigate the relationship between central bank independence and inflation, finding strong evidence that several core elements of what can be defined as CBI do reduce inflation.
75
No Single Definition of Central Bank Independence is Right for All Countries
TL;DR: This paper used a new international data set covering over 100 countries for the period 1990-2004 to investigate the relationship between central bank independence and inflation and found strong evidence that several core elements of what can be defined as CBI do reduce inflation.
72
Central Bank Institutional Structure and Effective Central Banking: Cross-Country Empirical Evidence
TL;DR: In this article, the authors investigate the hypothesis that institutional form is related to performance of central banks and conclude that institutional forms play an important role in central bank performance, but little empirical work has been done to investigate this hypothesis.
Financial Heterogeneity in a Monetary Union
TL;DR: In this paper, the authors address the issue of macroeconomic policies in a financially heterogeneous monetary union and show that a Euro-wide monetary policy strategy based on national information does not offset the costs associated with the abandonment of national monetary policy.
Political business cycles and monetary policy revisited–an application of a two-dimensional asymmetric Taylor reaction function
TL;DR: This paper used two-dimensional asymmetric Taylor reaction functions for 16 OECD-countries to account for different reactions to the inflation rate and output by central banks before or after an election of the fiscal authorities in the respective country.
9
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What Is the Demand for Price Stability in Post-Communist Countries?
TL;DR: The authors found that older people worry more about inflation, whatever the national context, while people in the labor force, especially those who have experienced unemployment, worry more than losing their jobs.
Central bank independence—conceptual clarifications and interim assessment
James Forder
- 01 Jul 1998
TL;DR: It is argued that credibility problems in macroeconomics hardly exist, and certainly do not motivate central bank independence as mentioned in this paper, and much work which follows should be interpreted as blueprints for good policy, not institutional reforms.
European Monetary Policy: Institutional Design and Policy Experience
TL;DR: In this paper, the authors examine design issues relevant to European monetary policy: central bank independence, and the accountability and transparency of monetary policy strategy, and an empirical approach is then applied which allows a comparison between the ECB and other central banks.