Central bank independence as a prerequisite for ensuring price stability: Modeling the role of the national pattern
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Author(s)Atik KerimovLink to ORCID Index: https://orcid.org/0000-0003-2493-6180
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Azer BabayevLink to ORCID Index: https://orcid.org/0000-0002-9067-7562
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Viktoria DudchenkoLink to ORCID Index: https://orcid.org/0000-0002-0054-8362
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Yaryna SamusevychLink to ORCID Index: https://orcid.org/0000-0001-7048-8388
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Martina PodmanickaLink to ORCID Index: https://orcid.org/0000-0002-6516-9275
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DOIhttp://dx.doi.org/10.21511/bbs.18(4).2023.25
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Article InfoVolume 18 2023, Issue #4, pp. 307-319
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Funding dataFunder name: This research was funded by the Ministry of Education and Science of Ukraine and contains the results of the project no. 0121U100469Funder identifier:Award numbers:
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Ensuring price stability is a dominant function of the central bank. Empirical studies on various statistical samples give conflicting results regarding the influence of central bank independence on the inflation rate. The study offers a methodology for assessing the role of the formation of a national pattern of central bank independence in ensuring price stability. Calculations were made for 53 countries of the world using a combination of cluster analysis tools and panel regression modeling. The cluster analysis carried out at different time intervals of the study allowed defining three patterns of the formation of central bank independence. The changes in the clusters characterizing the peculiarities of the national patterns of central bank independence shows that for a number of countries there is no stable national pattern. Modeling based on panel data showed that when forming a country pattern “Limited level of central bank independence”, an increase in the level of independence of the central bank by one unit on average leads to an increase in the inflation rate by 7.09%. On the other hand, in the countries with the national patterns of central bank independence “Dominance of the institutional and financial component of ensuring the independence of the central bank” and “Dominance of the personal and functional component of ensuring the independence of the central bank”, the expected consequence of increasing the level of independence of the central bank by one unit is to reduce the inflation rate by an average of 3.32% and 6.03%, respectively.
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JEL Classification (Paper profile tab)E31, E58, F30
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References41
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Tables9
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Figures1
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- Figure 1. Results of hierarchical clustering of 53 countries by components of central bank independence in 2000 (Ward’s method)
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- Table 1. Results of checking the quality of clustering of 53 countries of the world according to the Kalinsky-Harabazh criterion
- Table 2. Results of clustering countries by approach to the formation of central bank independence using the k-means method as of 2000
- Table 3. Results of clustering countries by approach to the formation of central bank independence using the k-means method as of 2012
- Table 4. Results of assessing the impact of central bank independence on price stability, measured by the inflation rate, for countries in the cluster “Dominance of the personal and functional component of ensuring central bank independence”
- Table 5. Results of evaluating the impact of central bank independence on price stability, measured by the inflation rate, for countries in the “Limited level of central bank independence” cluster
- Table 6. Results of assessing the impact of central bank independence on price stability, measured by the inflation rate, for countries in the cluster “Dominance of the institutional and financial component of ensuring central bank independence”
- Table 7. Results of assessing the impact of central bank independence on price stability, measured by the inflation rate, for countries that formed the pattern “Dominance of the institutional and financial component of ensuring central bank independence”
- Table 8. Results of assessing the impact of central bank independence on price stability, measured by the inflation rate, for countries that formed the pattern “Dominance of the personal and functional component of ensuring central bank independence” in 2
- Table 9. Results of evaluating the impact of individual parameters of central bank independence on price stability, measured by the level of inflation, for countries that formed the “Limited level of central bank independence” pattern in 2000–2012
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Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
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