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.

Is the interest rate setting behaviour of the Bank of Ghana constrained by high debt levels?

“…Policy tightening also slows down the economy, reduces government revenues and the cycle of deficit and debt continues (Dornbusch, 1996). As government and monetary policymakers are supposed to be independent entities (see Seetanah, Sannassee, & Dilmohamed, 2014), the tightening of monetary policy that slows the economy down may elicit an opposite response from the fiscal authorities who may embark on an expansionary fiscal policy (particularly on political grounds) to spur on economic activities and thereby widen the deficit further. With these counter fiscal policies by the fiscal authorities and the eventual effect on inflation that the monetary authorities would want to fight, it places the latter in a difficult situation and can affect their credibility if the inflation targets are not achieved.…”

Exchange rate volatility and pass‐through to inflation in South Africa

“…As standard in the literature, the authors use forecasters’ disagreement as a proxy for central bank credibility. Greater central bank independence is associated with lower inflation in other regional economies (e.g., Seetanah, Sannassee, & Dilmohamed, 2014, for Mauritius).…”