The effect of central bank independence on inflation and inflation uncertainty: The example of BRICS-T countries

In economic theory, the importance of central bank independence in maintaining price stability necessitates a clear separation between political and monetary authority. This separation is crucial to effectively manage inflation while ensuring minimal impact on variables such as economic growth and unemployment. The establishment of central bank autonomy, which originated in the 1970s and persists today, is considered an indispensable regulatory measure aimed at safeguarding the central bank from government interference, thereby mitigating or even eliminating inflationary biases. This study contributes to the existing literature by empirically examining the relationship between central bank independence and both inflation levels and inflation uncertainty. By employing panel data analysis and utilizing data from 1995 to 2017, the analysis focuses on the BRICS-T countries. The findings reveal several noteworthy outcomes. Firstly, the study identifies a statistically significant and negative association between the level of central bank independence and inflation in the BRICS-T countries. This implies that a higher degree of independence is associated with lower inflation rates. Additionally, the study uncovers a statistically significant and positive relationship between central bank independence and inflation uncertainty. This indicates that as the level of independence increases, inflation uncertainty also tends to rise. These results shed light on the intricate dynamics between central bank independence, inflation, and inflation uncertainty, offering valuable insights for policymakers, central banks, and researchers interested in monetary policy effectiveness and macroeconomic stability. Further analysis is warranted to explore the underlying mechanisms driving these relationships and to assess potential variations across countries and time periods.