Abstract
This paper examines the relation between granting central banks more independence represented in both its manifested legal charter as well as actual practices adopted and inflation in Egypt during the period from 1998-2019. To do so, this paper first looks at the evolution of different central bank independence (CBI) measures and adopts the most comprehensive relevant one. Consequently, it runs a regression model adopting an autoregressive distributed lag (ARDL) model, regressing the dependent variable inflation on its determinants of legal CBI, actual CBI, M2 and openness, to capture such relation in both the short and long term time dimensions in the case of Egypt. The paper further provides an interpretation of computed outcomes, where it presents robust evidence of an inverse relation between inflation and CBI in Egypt in the period under study in its legal and actual form and in both the short-run and the long-run. Keywords: Central bank independence, Central Bank of Egypt, Inflation, Autoregressive distributed lag, unit root testJEL Classifications: E31, E42, E58, E370DOI: https://doi.org/10.32479/ijefi.10941
Highlights
During the last decades, monetary authorities were increasingly delegated greater independence from political authority in many countries, to allow monetary policy to achieve its macroeconomic goals of fostering economic growth and employment (Gourinchas, 2010) through stabilizing inflation level1
Inflation is measured by consumer price index (CPI), LCBI is the legal index for central bank independence (CBI) of Central Bank of Egypt (CBE), M2 is Money supply
This paper defines CBI as the ability to design, articulate and execute monetary policy to achieve its main goal of maintaining price stability, despite the fact that it may come at the expense of other more politically advocated goals
Summary
Monetary authorities were increasingly delegated greater independence from political authority in many countries, to allow monetary policy to achieve its macroeconomic goals of fostering economic growth and employment (Gourinchas, 2010) through stabilizing inflation level. Monetary authorities were increasingly delegated greater independence from political authority in many countries, to allow monetary policy to achieve its macroeconomic goals of fostering economic growth and employment (Gourinchas, 2010) through stabilizing inflation level1 This trend is based on widespread belief that central bank independence (CBI) will allow it to effectively diminish “inflationary bias” from induced political pressures (Rogoff, 1985). Economic literature includes many studies attempting to tackle different perspectives of CBI ranging from its emergence, measures, and supporting evidence
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