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Central bank independence and stock market returns in developed countries

Author

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  • Maria Teresa Medeiros Garcia
  • Pedro Miguel Mendes Rosa Costa

Abstract

Central bank independence (CBI) is seen in the literature and by policy-makers as being important for achieving stability of inflation and long-term welfare. However, relatively few studies directly consider the relationship between CBI and stock market returns. Using a set of 21 developed countries, over a period of 20 years, and the Morgan Stanley Capital International indices, we test the impact caused by the levels of independence of countries’ central banks. The results lead us to conclude that the ‘free lunch’ hypothesis behind CBI cannot be rejected when its impact on stock market returns is considered.

Suggested Citation

  • Maria Teresa Medeiros Garcia & Pedro Miguel Mendes Rosa Costa, 2019. "Central bank independence and stock market returns in developed countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 33(3), pages 335-352, May.
    • Handle: RePEc:taf:irapec:v:33:y:2019:i:3:p:335-352
    DOI: 10.1080/02692171.2018.1493093
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    Cited by:

    1. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Cep Jandi Anwar & Indra Suhendra, 2023. "Measuring Response of Stock Market to Central Bank Independence Shock," SAGE Open, , vol. 13(1), pages 21582440231, February.
    3. Anwar, Cep Jandi, 2021. "Heterogeneity Effect of Central Bank Independence on Asset Prices: Evidence from Selected Developing Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 65-80.

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