AI Summary & Key Takeaways
AI InsightThis is an openaccess article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
📌 3 Key Takeaways
Abstract
The study examines the effects ofŞnancial systems and the quality of political institutions on theeffectiveness of central bank independence in achieving lower inflation. Drawing from the Şscal theoryof price level (FTPL) and political economy of macroeconomic policy (PEMP) literature; we estimate apanel regression model, using Two Stage Least Squares instrumental variables procedure, on a sample of48 African countries over the period 1970e2012. The study Şnds that central bank independenceinflation nexus is dependent on the model, sample and estimation technique used. After accountingfor various control variables and introducing inflation targeting as an additional explanatory variable, thestudy shows that, unlike in developed countries, CBI is not sufŞcient in achieving lower inflation in Africaand the developing world. However, common to developed, developing and African countries, is that,higher central bank independence is more effective in lowering inflation in the presence of high levels ofbanking sector development and institutional quality. TheŞndings of the study also show that whilestock market development enhances the effectiveness of CBI in developed and developing countries, ithas no signiŞcant effect on CBI effectiveness in Africa.© 2017 Central Bank of The Republic of Turkey. Production and hosting by Elsevier B.V. This is an openaccess article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)