THE ROLE OF CENTRAL BANK INDEPENDENCE IN PRICE STABILITY

THE ROLE OF CENTRAL BANK INDEPENDENCE IN PRICE STABILITY

Bulat MUKHAMEDIYEV, Azimzhan KHITAKHUNOV & Zhansaya TEMERBULATOVA

ABSTRACT
This study aims to determine the relationship between inflation and the independence of central banks in post-Soviet, developed, and developing countries. The hypothesis of a negative statistical relationship between the inflation rate and the values of the CWN and GMT central bank independence indices and their constituent subindices for post-Soviet, developed, and developing countries for 2001–2020 was tested. Based on the results of the econometric assessment, the paper finds that high values of the central bank independence indices and their sub-indices help to keep inflation in a certain corridor: if inflation is high, central bank independence reduces it, and if inflation is low, it helps to keep inflation at a low level. The impact of central bank independence on inflation weakens as inflation decreases.

KEYWORDS: Central Bank Independence, Inflation, CWN and GMT Indices, Post-Soviet Countries, Monetary Policy, Central Asia.

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