Title: Does central bank independence really matter? Re-assessing the role of the independence of monetary policy-makers in macroeconomic outcomes

Authors: Athina Zervoyianni; Athanasios Anastasiou; Andreas Anastasiou

Addresses: Department of Economics, University of Patras, University-Campus Rio, 26504 Patras, Greece ' Department of Economics, University of Peloponnese, Karaiskaki 22100, Tripolis, Greece ' Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, UK

Abstract: Despite the growing literature, central bank independence (CBI) is still one of the most controversial and frequently discussed issues in macroeconomics. This paper re-examines the role of central bank independence in macroeconomic outcomes, seeking to add to the existing empirical literature in two ways: first, we control for factors, which might account for the cross-country differences in macroeconomic outcomes, but which, either individually or as a group, are often given no adequate attention in existing studies; second, in addition to standard regressions, we use Markov-Chain Monte-Carlo estimation methods from a Bayesian perspective, which are believed to improve result robustness by increasing parameter accuracy and reducing the effect of outlying observations. Based on (average) data from 39 countries covering the time-periods 1981-1989, 1991-1998 and 1999-2006, our estimates suggest that lower inflation should be seen as resulting from a broad range of institutional and structural factors, with CB independence failing to play the key role. We also find no consistent evidence of a positive relationship between central bank independence and employment growth or evidence that it reduces economic instability.

Keywords: macroeconomic performance; macroeconomic outcomes; CBI; central bank independence; globalisation; labour markets; Bayesian methods; Bayes; central banks; cross-country differences; MCMC; Markov Chain Monte Carlo; longitudinal studies; inflation; employment growth; economic instability; monetary policy.

DOI: 10.1504/IJEBR.2014.065513

International Journal of Economics and Business Research, 2014 Vol.8 No.4, pp.427 - 473

Received: 31 Dec 2012
Accepted: 01 Feb 2014
Published online: 31 Oct 2014 *

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