Open AccessTHE EFFECT OF CENTRAL BANK INDEPENDENCE ON PRICE STABILITY: THE CASE OF INDONESIA
Author(s) -
Yessy Andriani,
Prasanna Gai
Publication year - 2013
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 4
ISSN - 1410-8046
DOI - 10.21098/bemp.v15i4.72
Subject(s) - inflation (cosmology) , economics , central bank , independence (probability theory) , governor , ordinary least squares , price of stability , order (exchange) , econometrics , stability (learning theory) , inflation targeting , monetary economics , index (typography) , macroeconomics , monetary policy , mathematics , statistics , finance , computer science , engineering , physics , machine learning , theoretical physics , world wide web , aerospace engineering
This paper investigates the relationship between central bank independence (CBI) and inflation in Indonesia during 1970-2006. Using partial adjustment Ordinary Least Square (OLS) and Engel Granger Error Correction Model, the result shows that legal CBI index inversely affect the inflation, while the turnover of governor is not significant. This result emphasizes Bank Indonesia to strengthen its independency in order to achieve his inflation target. Keywords: Central bank independency, Inflation, Error Correction Model.JEL Classification : C32, E58