Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean
IMF Working Papers, April 1, 2005
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Bibliographic details
- Authors: Luis Ignacio Jácome, Francisco F. Vazquez
- Published: April 1, 2005
- Series: IMF Working Papers
Summary
- Reviews central bank legislation in 24 countries in Latin America and the Caribbean during the 1990s.
- Uses panel regressions to examine the relationship between legal central bank independence (CBI) and inflation.
- Main empirical conclusion: a negative relationship between legal CBI and inflation is found, but the paper fails to find a causal relationship running from CBI to inflation.
Methods and Scope
- Sample: 24 countries in Latin America and the Caribbean.
- Period covered: the 1990s.
- Empirical approach: panel regressions.
- CBI measurement: three alternative measures of legal central bank independence are used.
Key Findings
- A negative relationship between legal CBI and inflation is identified.
- The negative relationship holds:
- for three alternative measures of CBI;
- after controlling for international inflation, banking crises, and exchange regimes.
- The negative relationship is robust to inclusion of a broader indicator of structural reforms that usually accompany changes in central bank legislation, illustrating the complementary nature of various aspects of economic reform.
- The analysis does not establish causality from CBI to lower inflation.
Controls and Robustness Checks
- Controlled factors explicitly mentioned:
- international inflation;
- banking crises;
- exchange regimes.
- Robustness: result persists when a broader indicator of structural reforms is included.
Thematic Keywords and Subjects
- Subjects: Banking, Central bank autonomy, Inflation, Legal support in revenue administration, Structural reforms.
- Keywords: inflation in the sampled country, inflation performance, least squares, reform country, structural reform, World inflation, WP.
Source: IMF Working Papers — Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean, Luis Ignacio Jácome and Francisco F. Vazquez, April 1, 2005.