Abstract
A well-developed theoretical literature suggests that central bank independence causes low inflation. Empirical work supporting this hypothesis is unsatisfactory, however, for two reasons: statistical analysis has only recently begun to include control variables, and important political variables that are related to inflation have not yet been included; analysis has not yet undertaken a systematic comparison of alternative indices of central bank independence. This paper addresses both weaknesses by testing the explanatory power of eight indices of central bank independence in a political-economic model of inflation. The results suggest that while support for the central bank independence hypothesis survives a relatively inclusive set of control variables, support for the hypothesis is not independent of the particular index upon which analysis relies.
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Oatley, T. Central bank independence and inflation: Corporatism, partisanship, and alternative indices of central bank independence. Public Choice 98, 399–413 (1999). https://doi.org/10.1023/A:1018309521386
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DOI: https://doi.org/10.1023/A:1018309521386