Central Bank Independence and Inflation: Evidence from Mauritius

Abstract

The present study analyses the relationship between central bank independence and the rate of inflation for Mauritius for the period 1975–2010 using a dynamic time series analysis. Furthermore, it also presents the construction of a new CBI index which is used to assess the degree of independence enjoyed by the Bank of Mauritius over the period of study. Using an ARDL approach, the findings reveal an inverse and significant relationship between CBI and inflation in the long run. However, no significant relationship could be found in the short run.