Central Bank Reform, Liberalization and Inflation in Transition Economies - an International Perspective

39 Pages Posted: 30 May 2001

See all articles by Alex Cukierman

Alex Cukierman

Tel Aviv University - Eitan Berglas School of Economics; Interdisciplinary Center (IDC) Herzliyah; Centre for Economic Policy Research (CEPR)

Geoffrey P. Miller

New York University School of Law

Bilin Neyapti

Bilkent University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 2001

Abstract

This Paper develops extensive new indices of legal independence (Central Bank Independence, or CBI) for new central banks in 26 former socialist economies (FSEs). The indices reveal that central bank reform in the FSE during the 1990s has been quite ambitious. In spite of large price shocks, reformers in those countries have chosen to create central banks with levels of legal independence that are substantially higher, on average, than those of developed economies during the 1980s. The evidence in the Paper shows that CBI is unrelated to inflation during the early stages of liberalization. But with sufficiently high and sustained levels of liberalization, and controlling for other variables, legal CBI and inflation are significantly and negatively related. These findings are consistent with the view that even high CBI cannot contain the initial powerful inflationary impact of removing price controls. But once the process of liberalization has gathered sufficient momentum legal independence becomes effective in reducing inflation. The Paper also presents evidence on factors that affect the choice of CBI and it examines the relation between inflation and CBI in a broader sample.

Keywords: Central banks, inflation, legal independence, reform, transition economies

JEL Classification: E50, K20, P16, P20

Suggested Citation

Cukierman, Alex and Miller, Geoffrey P. and Neyapti, Bilin, Central Bank Reform, Liberalization and Inflation in Transition Economies - an International Perspective (June 2001). CEPR Discussion Paper No. 2808. Available at SSRN: https://ssrn.com/abstract=271698

Alex Cukierman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 540 5360 (Phone)
+972 3 640 9908 (Fax)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

HOME PAGE: http://www.tau.ac.il/~alexcuk/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Geoffrey P. Miller

New York University School of Law ( email )

Center for the Study of Central Banks
40 Washington Square South
New York, NY 10012-1099
United States
212-998-6329 (Phone)
212-995-4590 (Fax)

Bilin Neyapti

Bilkent University - Department of Economics ( email )

06800 Bilkent, Ankara
Turkey
+90 312 290 2030 (Phone)
+90 312 266 5140 (Fax)

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