This paper was presented to the Western Economic Association International annual meeting, July 1998, in Lake Tahoe, Nevada. The first three sections are revised from an earlier paper of the same title presented at the Western Social Science Association annual meeting, Albuquerque, April 1997. We thank Fatholla Bagheri, Richard Burdekin, Patricia Hughes, Alex Kondonnassis, Mark partridge, and an anonymous refree for helpful comments and advice.
Central bank independence, economic freedom, and inflation rates
Version of Record online: 26 MAR 2007
Volume 39, Issue 1, pages 149–161, January 2001
How to Cite
Banaian, K. and Luksetich, W. (2001), Central bank independence, economic freedom, and inflation rates. Economic Inquiry, 39: 149–161. doi: 10.1111/j.1465-7295.2001.tb00057.x
- Issue online: 26 MAR 2007
- Version of Record online: 26 MAR 2007
Measures of central bank independence combine many attributes that may or may not affect inflation. Central bank attributes are chosen as a result of political calculations over the distribution of resources between competing interest groups. Simultaneity bias results from regressions of central bank independence or of economic and political freedom on inflation or growth. Our estimates demonstrate the connections between economic and political freedom and central bank attributes that lead to inflation. Countries showing high degrees of economic freedom adopt structures that lead to lower inflation; those that show high degrees of political freedom do not adopt inflation-reducing institutional structures.