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Oxford Economic Papers Advance Access published online on February 23, 2008
Oxford Economic Papers, doi:10.1093/oep/gpn004
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© Oxford University Press 2008 All rights reserved

Central bank independence and price stability: evidence from OECD-countries

Sven-Olov Daunfeldt* and Xavier de Luna{dagger}

*The Swedish Retail Institute (HUI), SE-103 29 Stockholm, Sweden; and Department of Economics, University of Gävle, SE-801 76 Gävle, Sweden; e-mail: sod{at}hig.se
{dagger}Department of Statistics, Umeå University


  Abstract

In this paper, we use a non-parametric regression method to compare the transition process from high to low inflation with the implementation dates of central bank independence reforms. In most countries, price stability is achieved before more independence is given to the central bank. Moreover, for those countries which have implemented a central bank independence reform under a high inflation regime, no evidence is found that the reforms have actually led to price stability. This suggests that the credibility of a low inflation goal can be achieved without institutional reforms which grant the central bank more independence from the political policymakers.

JEL classifications: C14, E52, E58


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