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Do Central Bank Independence Reforms Matter for Inflation Performance?
Umeå University, Faculty of Social Sciences, Department of Economics. Department of Business and Economic Studies, University of Gävle.
2011 (English)In: International Journal of Banking, Accounting and Finance, ISSN 1755-3830, E-ISSN 1755-3849, Vol. 3, no 4, 320-335 p.Article in journal (Refereed) Published
Abstract [en]

A difference-in-difference approach was used to investigate whether central bank independence (CBI) reforms matter for inflation, based on a novel dataset including the possible occurrence of such reforms in 132 countries during the period 1980 to 2005. CBI-reforms are found to have contributed to bringing down high inflation rates where those existed, but they seem unrelated to performance in low-inflation countries.

Place, publisher, year, edition, pages
InderScience Publishers, 2011. Vol. 3, no 4, 320-335 p.
Keyword [en]
monetary policy, institutional reforms, central banking, price stability, political economy, delegation, central bank independence, banking reforms, inflation performance
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:umu:diva-83981DOI: 10.1504/IJBAAF.2011.043700OAI: oai:DiVA.org:umu-83981DiVA: diva2:678349
Note

Biographical notes: Mats Landström is associated with the Department of Business and Economic Studies, University of Gävle. His research concerns empirical macroeconomics.

Available from: 2013-12-11 Created: 2013-12-11 Last updated: 2017-12-06Bibliographically approved
In thesis
1. Determinants and Effects of Central Bank Independence Reforms
Open this publication in new window or tab >>Determinants and Effects of Central Bank Independence Reforms
2013 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of four empirically oriented papers on central bank independence (CBI) reforms.   

Paper [1] is an investigation of why politicians around the world have chosen to give up power to independent central banks, thereby reducing their ability to control the economy. A new data-set, including the possible occurrence of CBI-reforms in 132 countries during 1980-2005, was collected. Politicians in non-OECD countries were more likely to delegate power to independent central banks if their country had been characterized by high variability in inflation and if they faced a high probability of being replaced. No such effects were found for OECD countries.   

Paper [2], using a difference-in-difference approach, studies whether CBI reform matters for inflation performance. The analysis is based on a dataset including the possible occurrence of CBI-reforms in 132 countries during the period of 1980-2005. CBI reform is found to have contributed to bringing down inflation in high-inflation countries, but it seems unrelated to inflation performance in low-inflation countries.   

Paper [3] investigates whether CBI-reforms are important in reducing inflation and maintaining price stability, using a random-effects random-coefficients model to account for heterogeneity in the effects of CBI-reforms on inflation. CBI-reforms are found to have reduced inflation on average by 3.31 percent, but the effect is only present when countries with historically high inflation rates are included in the sample. Countries with more modest inflation rates have achieved low inflation without institutional reforms that grant central banks more independence, thus undermining the time-inconsistency theory case for CBI. There is furthermore no evidence that CBI-reforms have contributed to lower inflation variability   

Paper [4] studies the relationship between CBI and a suggested trade-off between price variability and output variability using data on CBI-levels, and data the on implementation dates of CBI-reforms. The results question the existence of such a trade-off, but indicate that there may still be potential gains in stabilization policy from CBI-reforms.

Place, publisher, year, edition, pages
Umeå: Umeå universitet, 2013. 33 p.
Series
Umeå economic studies, ISSN 0348-1018 ; 869
Keyword
Monetary policy, institutional reform, central banking, price stability, political economy, delegation, institutional economics, inflation, time-inconsistency, accountability
National Category
Economics
Research subject
Economics
Identifiers
urn:nbn:se:umu:diva-83984 (URN)978-91-7459-768-4 (ISBN)
Public defence
2014-01-24, Samhällsvetarhuset, sal S 205 h, Umeå universitet, Umeå, 13:15 (English)
Opponent
Supervisors
Available from: 2013-12-16 Created: 2013-12-11 Last updated: 2013-12-16Bibliographically approved

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Publisher's full texthttp://inderscience.metapress.com/content/ct70114t1x510724/

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