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Legal central bank independence and inflation in various phases of transition

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  • Damir Piplica

Abstract

The transition environment of 11 EU member countries has created an exceptional opportunity for research on the influence of legal central bank independence (LCBI) on inflation within significantly different circumstances in comparison to developed Western countries. I construct my own transformed GMT (TGMT) model for estimation of the LCBI, researching transition in its early stages and later on, thus comprising the total period of transition. Even in early stages of the transition LCBI has significantly negative effects on inflation. In later phases all the countries show evidently high levels of the LCBI and low inflation rates, but in this phase increasing the LCBI would not result in decreasing the inflation rate. Only studying the entire period of the transition would show that LCBI has significant negative influence on inflation, clearly showing different levels of the LCBI and inflation, which was not so obvious in shorter intervals. Moreover, negative influence of the LCBI on inflation does not change even if I add budget deficit as an independent variable to my research.

Suggested Citation

  • Damir Piplica, 2015. "Legal central bank independence and inflation in various phases of transition," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 28(1), pages 167-186, January.
    • Handle: RePEc:taf:reroxx:v:28:y:2015:i:1:p:167-186
    DOI: 10.1080/1331677X.2015.1028244
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