On the Relationship between Central Bank’s Independence and Inflation Rate in Iran

Subject Areas : General Management

Mahmood Yahyazadehfar ¹ , Heydar Mostakhdemin Hosseini ² , Hooman Shababi ³ , Ali Asghar Mehrabi Alamdari ⁴

1 - Faculty of Economics and Business Administration, University of Mazandaran, Babolsa, Iran.
2 - Raja Institute of Higher Education, Tehran, Iran.
3 - Rahedanesh Institute of Higher Education, Babol, Iran.
4 - Mazandaran University of Science and Technology, Babol, Iran.

Received: 2013-04-20 Accepted : 2013-04-20 Published : 2012-07-01

Keywords: Inflation, Central Bank Independence (CBI, CBI indices, Central Bank of Islamic Republ, Inflation variability,

Abstract :

The purpose of present paper was to examine the relationship between central bank independenceand inflation rate in Iran over 1960-2008. First, central bank independence has been accomplished through threeindices including legal and real CBI indices and turnover rate of central bank governor index. Then, AugmentedDickey-Fuller test for model stationary of variables has been done by applying Eviews software. In addition, therelationship among the central bank independence indices and average inflation rate and its variability in Iran’seconomy has been investigated using Eviews and Microfit softwares. Necessary data for calculating CBI indexwere obtained from Cukierman criteria (LCBI). Furthermore, real CBI index was gathered via standardquestionnaire and turnover rate of central bank governor index data were collected through library survey. Theresults showed a negative relationship among real CBI and inflation and its variability. The relationship betweenlegal CBI and inflation was also negative, but its relationship with inflation variability was not statisticallysignificant. Also, a positive relationship between turnover rate of central bank governor index and inflation ratewas observed, but negative relationship was seen between turnover rate of central bank governor index andinflation rate variability.