TAILIEUCHUNG - CENTRAL BANK INDEPENDENCE: AN UPDATE OF THEORY AND EVIDENCE

However, it must be kept in mind that HTAs are only one of several options through which diasporas maintain links with and help their communities of origin. Immigrant entrepreneurs are also ‘social actors’, who participate actively in transnational activities. Several case studies have examined how small and medium entrepreneurs in Africa, Asia and Latin America continuously affiliate with partners or clients in Europe, Saudi Arabia and the United States, creating social networks that benefit migrants, as well as the communities they left behind and the ones they belong to in receiving countries. For example, in the Dominican Republic, there are hundreds of small- to medium- sized transnational enterprises (including small factories, commercial/retail establishments and financial agencies) | CENTRAL BANK INDEPENDENCE AN UPDATE OF THEORY AND EVIDENCE Helge Berger University of Munich Jakob de Haan University of Groningen Sylvester c. w. Eijffinger Tilburg University Abstract. This paper reviews recent research on central bank independence CBI . After we have distinguished between independence and conservativeness research in which the inflationary bias is endogenised is reviewed. Finally the various challenges that have been raised against previous empirical findings on CBI are discussed. We conclude that the negative relationship between CBI and inflation is quite robust. Keywords. Central Bank Independence Inflation Labour Markets 1. Introduction Nowadays it is widely believed that a high level of central bank independence CBI coupled with some explicit mandate for the bank to restrain inflation are important institutional devices to assure price stability. Indeed quite a few countries have recently changed their central bank laws accordingly. The theory underlying this view is the time inconsistency model by Kydland and Prescott 1977 and Barro and Gordon 1983 . The basic message of this theory is that government suffers from an inflationary bias and that as a result inflation is sub-optimal. Rogoff 1985 proposed to delegate monetary policy to an independent and conservative central banker to reduce this inflationary bias. Conservative means that the central banker is more averse to inflation than the government in the sense that s he places a greater weight on price stability than does the government. There is extensive empirical evidence suggesting that CBI helps to reduce inflation. This evidence generally consists of cross-country regressions using proxies for CBI either based on the statutes of the central bank or the turnover 0950-0804 01 01 0003-38 JOURNAL OF ECONOMIC SURVEYS Vol. 15 No. 1 Blackwell Publishers Ltd. 2001 108 Cowley Rd. Oxford OX4 1JF UK and 350 Main St. Malden MA 02148 USA. 4 BERGER DE HAAN AND EIJFFINGER rate of central bank .

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