Central Bank Independence and Inflation: Empirical Analysis

Many countries have implemented reforms on their Central Banks granting them more independence from political influences. This can be attributed to the recent research in this area which showed that making the Central Banks more independent is a very good means of achieving lower inflation/price stability in a country. Empirical work supporting this theory shows that there is a significant relationship between inflation and Central Bank Independence but not necessary enough to really bring down inflationary problems. Using data for 6 countries over the period of 1997-2011, result supports this theory but it also shows that other control variable needs to be added for better explanation, and also CBI should be part of policies and strategies to help fight and control inflation in these countries and not necessary the only solution as other policies need to be adopted by their Government and Central Banks. Keywords: Central Bank Independence, Inflation, Budget Surplus