Is There Any Link between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean

40 Pages Posted: 21 Mar 2008 Last revised: 3 Dec 2010

See all articles by Luis I Jácome

Luis I Jácome

International Monetary Fund (IMF)

Francisco Vazquez

International Monetary Fund

Date Written: March 1, 2008

Abstract

This paper reviews central bank legislation in 24 countries in Latin America and the Caribbean during the 1990s. Using panel regressions, the paper finds a negative relationship between legal central bank independence (CBI) and inflation. This result holds for three alternative measures of CBI, and after controlling for international inflation, banking crises, and exchange regimes. The result is also robust to the inclusion of a broader indicator of structural reforms that usually go along with changes in central bank legislation, illustrating the complementary nature of various aspects of economic reform. However, the paper fails to find a causal relationship running from CBI to inflation.

Keywords: Central bank independence, inflation, structural reform, Latin America

JEL Classification: E42, E58

Suggested Citation

Jácome, Luis I and Vazquez, Francisco, Is There Any Link between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean (March 1, 2008). Paolo Baffi Centre Research Paper No. 2008-07. Available at SSRN: https://ssrn.com/abstract=1112029 or http://dx.doi.org/10.2139/ssrn.1112029

Luis I Jácome (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Francisco Vazquez

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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