Central Bank Independence, Economic Growth and Inflation: Theories and Empirical Validations

  • Adel BOGARI Assistant Professor- College of Business Administration, Al-Baha University, KSA.

Abstract

Economics theory’s assumption is that a central bank's independence from political power entails a split between political and monetary power. Such a split is unavoidable in order to control price instability without harming other macroeconomic variables such as growth or unemployment. The theory calling for central bank autonomy, started as early as the 1970s and still gaining ground, assumes the role of central banks as an arrangement sin qua non for tying the hands of government and consequently reducing inflationary bias, or even eliminating this scourge. Moreover, such a debate is mostly relevant for monetary policy, because of its inherent incredibility. Then, our aim in this study is to test the relevance of an anti-inflationary policy, reflected in freeing the central bank from the grip of political power, to combat inflation. To this end, we examine samples of developed countries (20 countries) and developing countries (37 countries) observed over the two study periods 1997-2006 and 2007-2016. We found that high-inflation countries and atypical countries biased our results, for both inflation rates and variability. This finding remains valid even after the introduction of a set of political and economic variables likely to affect inflation.
Keywords: Central Bank, Independence, Economic growth, Inflation, Monetary policy, Political power.
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How to Cite
BOGARI, A. (2020, April 6). Central Bank Independence, Economic Growth and Inflation: Theories and Empirical Validations. International Journal of Applied Economics, Finance and Accounting, 6(1), 11-21. https://doi.org/https://doi.org/10.33094/8.2017.2020.61.11.21
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