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The rule of law, central bank independence and price stability

Published online by Cambridge University Press:  20 June 2017

DANIYAR NURBAYEV
DANIYAR NURBAYEV*
Affiliation:
The Eurasian Research Institute, Almaty, Kazakhstan
*
*Email: daniyar.nurbayev@eurasian-research.org
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Abstract

This work empirically investigates the effect of the interaction between the rule of law and legal central bank independence (CBI) on price stability (the level of inflation and inflation volatility), employing a panel dataset that covers up to 124 countries over the period from 1970 to 2013. A new, largely complete legal CBI dataset, covering 182 countries was used for the work. The results indicate that the effect of legal CBI on price stability depends on the strength of the rule of law. Moreover, the results reveal that legal CBI has no significant effect on price stability when the rule of law is weak. The findings also show that 67% of advanced countries possess a rule of law that is strong enough to maintain price stability by increasing central bank autonomy, while only 4.5% of developing countries possess it.

Type
Research Article
Information
Journal of Institutional Economics , Volume 14 , Issue 4 , August 2018 , pp. 659 - 687
Copyright
Copyright © Millennium Economics Ltd 2017 

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