The effects of central banks' independence on inflation outcomes in emerging countries: Does the choice of exchange regime matter?

Jamal Bouoiyour (1) , Refk Selmi (1)

1 CATT - Centre d'Analyse Théorique et de Traitement des données économiques

This chapter considers the benefits and the drawbacks of the choice of exchange regime on the central bank independence effects on inflation outcomes. The analysis of data of inflation, central bank independence, exchange regime either fixed or floating and other explanatory variables of twelve emerging countries from 1991 to 2009 provides strong support for the theoretical viewpoint, whereby regulatory separation exerts a substantial effect on inflation dynamic. More precisely, this study explores empirical evidence that low inflation outcomes may be achieved by setting up central bank independence which itself should be accompanied by pegged exchange regime. Furthermore, we note that matter which classification is employed either de facto or de jure, the effect of regulatory separation on inflation outcomes is lower in countries operating under fixed exchange regime than those operating under floating peg. These results do not change substantially when changing the model (i.e. ordinary least squares with two-way fixed effects chosen by Hausman test and Arellano and Bond method or when including the multiplicative interaction terms) or when changing exchange classifications (i.e. de jure and de facto).

Mots clés: Exchange regime; Inflation; Central bank independence

Domaines: Economies et finances

Jamal Bouoiyour, Refk Selmi. The effects of central banks' independence on inflation outcomes in emerging countries: Does the choice of exchange regime matter?. Exchange rates in developed and emerging markets: Practices, challenges and economic implications., 2013. ⟨hal-01886584⟩