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The Effect of Central Bank Independence on Price Stability: The Case of Indonesia

Author

Listed:
  • Yessy Andriani
  • Prof. Prasanna Gai

Abstract

This paper investigates the relationship between central bank independence (CBI) and inflation in Indonesia during 1970-2006. Using partial adjustment Ordinary Least Square (OLS) and Engel Granger Error Correction Model, the result shows that legal CBI index inversely affect the inflation, while the turnover of governor is not significant. This result emphasizes Bank Indonesia to strengthen its independency in order to achieve his inflation target.

Suggested Citation

  • Yessy Andriani & Prof. Prasanna Gai, 2013. "The Effect of Central Bank Independence on Price Stability: The Case of Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 15(4), pages 353-376, April.
    • Handle: RePEc:idn:journl:v:15:y:2013:i:4g:p:353-376
    DOI: https://doi.org/10.21098/bemp.v15i4.431
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    References listed on IDEAS

    as
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    3. Bernd Hayo & Stefan Voigt, 2008. "Inflation, Central Bank Independence, and the Legal System," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(4), pages 751-777, December.
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    7. Åke Lönnberg & Mr. Peter Stella, 2008. "Issues in Central Bank Finance and Independence," IMF Working Papers 2008/037, International Monetary Fund.
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    More about this item

    Keywords

    Central bank independency; Inflation; Error Correction Model.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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