The Effect of Central Bank Independence on Price Stability: The Case of Indonesia

Andriani, Yessy; Gai, Prasanna

doi:10.21098/bemp.v15i4.72

Cited by 3 publications

(5 citation statements)

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“…According to Brumm (2002) and Andriani and Gai (2013), the absence of a negative relationship between CBI and inflation could be attributed to an inappropriate econometric methodology.…”

Section: Resultsmentioning

confidence: 99%

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Heterogeneity Effect of Central Bank Independence on Inflation in Developing Countries

Anwar

2022

Global Journal of Emerging Market Economies

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This research investigates the relationship between central bank independence and inflation for 37 developing countries during the period from 1972 to 2019. Given that most developing countries experienced high inflation, many opted for central bank independence to enhance their focus on inflation. Central bank independence reforms were anticipated to create a higher level of independence, which would result in a low inflation rate. We employed pooled least square with the assumption of homogeneity of co-efficients; the result showed no significant relationship between central bank independence and inflation. We checked the homogeneity assumption of the panel by applying Chow and Roy–Zellner tests; results showed that the model was not homogeneous. Furthermore, we performed the panel heterogeneity model with the pooled mean group estimator which indicated that a reverse relationship exists between central bank independence and inflation. This finding is robust as we split the sample into two groups: moderate and high inflation countries; the negative relationship between those variables still exists.

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“…According to Brumm (2002) and Andriani and Gai (2013), the absence of a negative relationship between CBI and inflation could be attributed to an inappropriate econometric methodology.…”

Section: Resultsmentioning

confidence: 99%

“…These results confirm that assuming a homogeneity co-efficient across countries, CBI does not explain inflation in developing countries. According to Brumm (2002) and Andriani and Gai (2013), the absence of a negative relationship between CBI and inflation could be attributed to an inappropriate econometric methodology.…”

Section: Resultsmentioning

confidence: 99%

Heterogeneity Effect of Central Bank Independence on Inflation in Developing Countries

Anwar

2022

Global Journal of Emerging Market Economies

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“…The Governor's factor can be a determining factor for a Central Bank's competence, such as the results of research from Ozili (2020). Although Yessy Andriani and Prasanna Gai's analysis states that the Central Bank's independence will positively affect the inflation target, the Governor's change does not show any significance with the inflation target in Indonesia (Andriani & Gai, 2013). Changing a law must have a background and urgency.…”

Section: Literature Reviewmentioning

confidence: 98%

“…The spread of COVID-19 has led the Indonesian Government to issue Law No. 2 2 of 2020 provides a basis for the Government, Financial Services Authority, Bank Indonesia and related parties to overcome the impact of the spread of COVID-9 on Indonesia's economy. Based on Law No.…”

Section: Introductionmentioning

confidence: 99%

Proposed changes to the Bank Indonesia law as a solution to the impact of the COVID-19 spread on banking in Indonesia

Christiani

2021

Banks and Bank Systems

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Every amendment to the Bank Indonesia Law is caused by a situation that requires changes to the Law regulating the Central Bank in Indonesia as a solution. The spread of COVID-19 in Indonesia has also led to proposals to amend the Bank Indonesia Law. The purpose of the study is to find answers to the relevance of the proposed Amendment to Bank Indonesia Law to address the spread of COVID-19 to banking institutions in Indonesia. This type of research methods is normative legal research. In normative legal analysis, secondary data are used, consisting of primary and secondary legal materials. They are obtained from applicable regulations in Indonesia. The study results show that every change is always based on events that prove the weak implementation of existing rules with a regulatory and conceptual approach. The spread of COVID-19 is a situation, that has no practical basis and requires amendments to the Bank Indonesia Law as an alternative solution. Also, the proposed amendments are not yet relevant to address the impact of COVID-19 on banks because they have not yet realized and achieved the legal goals of providing benefits to the community. AcknowledgmentThanks to Universitas Atma Jaya Yogyakarta, Indonesia, for providing funding for research and publication.

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“…Other research shows that there is a negative relationship between central bank independence and inflation in certain conditions, for example, improvement in institutional quality (Agoba et al, 2017;Bouoiyour & Selmi, 2013;Hove et al, 2017;Salahodjaev & Chepel, 2014). Other studies have found a negative relationship between the independence of central banks in developing countries (Andriani & Gai, 2013;Garriga & Rodriguez, 2019;Nagac & Rizvanoghlu, 2018). The diversity of the results of these studies, indicating the answer to the relationship between central bank independence and inflation is still a topic that continues to be discussed, and there is a research gap that has to be answered.…”

Section: Introductionmentioning

confidence: 97%

Central Bank Independence and Inflation: The Matters of Financial Development and Institutional Quality

Kunaedi

Darwanto

2020

Signifikan

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The inverse relationship between the independence of the central bank (CBI) and inflation became a consensus that trusted throughout the world. However, there is no conclusive explanation of why and how central bank independence has succeeded in suppressing inflation. The purpose of this study is to examine the influence of financial development and institutional quality on the relationship between central bank independence and inflation. Using 20 Countries of Asia with institutional diversity, this study analyzed through a dynamic panel approach (GMM-Arellano and Bond Estimator). The result indicates that the inverse relationship between central bank independence and inflation depends on the development of the financial sector and also the institutional quality of each country. In other words, to make the central bank's independence work effectively in order to solve bias inflation, the improvement of the financial sector and also the institutional quality is needed.JEL Classification : E580, E310, E020 How to Cite:Kunaedi, A., & Darwanto. (2020). Central Bank Independence and Inflation: The Matters of Financial Development and Institutional Quality. Signifikan: Jurnal Ilmu Ekonomi, Vol. 9(1), 1-14. doi: http://dx.doi.org/10.15408/sjie.v9i1.12899.

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The Effect of Central Bank Independence on Price Stability: The Case of Indonesia

Cited by 3 publications

References 5 publications

Heterogeneity Effect of Central Bank Independence on Inflation in Developing Countries

Heterogeneity Effect of Central Bank Independence on Inflation in Developing Countries

Proposed changes to the Bank Indonesia law as a solution to the impact of the COVID-19 spread on banking in Indonesia

Central Bank Independence and Inflation: The Matters of Financial Development and Institutional Quality

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