The Effect of Central Bank Independence on Price Stability: The Case of Indonesia
Abstract
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, E58Downloads
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References
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Fransisco, 2003. ‘Time-Inconsistent Monetary Policies: Recent Research’, FRBSF Economic Literature
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Guerrero, 2007. ‘Japan’s Deflation: A Time-Inconsistent Policy in Need of an Inflation Target’, Journal compilation.
Hafild, 2000. ‘Addicted to Loan: The World Bank Foot Prints in Indonesia’, Briefing Paper
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Hicks, 2004. ‘Does Institutional Change Matter? The effect of central bank reform on inflation’, Paper presented at the annual meeting of the The Midwest Political Science Association, Palmer House Hilton, Chicago, Illinois.
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Jacome, 2007. ‘Is there Link Between Legal Central Bank Independence and Inflation?Evidence from Latin America and Caribbean’. European Journal of Political Economy.
de Jong. E 2002. ‘Why are Price Stability and Statutory Independence of Central Banks Negatively Correlated? The Role of Culture. European Journal of Political Economy, 18, 675 - 694.
Juhro, 2007. ‘Karakteristic Tekanan Inflasi di Indonesia: Pengaruh Dinamis Sisi PermintaanPenawaran dan Prospek ke Depan (Characteristic of Inflationary Pressure in Indonesia: Demand - Supply Side Dynamic Effect in Advance)’.
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Rahardjo, 2000. ‘Independensi Bank Indonesia dalam Kemelut Politik (Bank Indonesia’s Independence in Political Turbulence)’.
Restepo, 2000. ‘Central Bank Independence and Inflation: The Case of Colombia, 19241998’.
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Samiei, 1999. ‘Central Bank Independence and Conduct of Monetary Policy in United Kingdom’, IMF Working Paper.
Summers, 1993. ‘Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence’, Journal of Money, Credit and Banking,, Vol. 25, (No. 2, pp. 151162).
Swasono, 2000. ‘Independensi Bank Indonesia Yang Terbukti Runyam (The difficulty of Indonesian Central Bank)’.
Tambakis, 1999. ‘Effective Central Bank Independence and the Inflation-Output Trade-Off’, Journal of Macroeconomics,, Vol. 21 ( No. 4, pp. 729-753).
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1966-1983)
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The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1999-2005)
Triampella, 2005. ‘Central Bank Independence and Inflation: the Case of Greece’, Discussion Paper Series, (7).
Uriarte, 1985. ‘Transnational Banks, and the Dynamics of Peruvian Foreign Debt and Inflation.’.
Vázquez, 2005. ‘Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean’, IMF Working Paper.
Voigt, 2005. ‘Inflation, Central Bank Independence and the Legal System’, ICER Working Papers, (2).
Walsh, 1995. ‘Optimal Contracts for Central Bankers’, American Economic Review.
Walsh, 2003. ‘Monetary Theory and Policy (Second Edition), Cambridge US and London UK: The MIT Press,
Waud, 1995. ‘Central Bank Independence and the Output-Inflation tradeoff’. Journal of Economics and Business, Elsevier, Vol. 47(2), page 137-149, May.
Webb, 1995. ‘Political Influence on the Central Bank: International Evidence’, The World Bank Economic Review, VOL. 9, (NO. 3 ): 397-423
Ahsan, 2006. ‘Determinants of central bank independence and governance: Problems and policy implications’, JOAAG,, Vol. 1 (No. 1).
Annonynomous 1996, ‘Angka Inflasi di Zaman Orla dan Orba ‘, Kompas Online http://www. kompas.com/9609/07/EKONOMI/angk.htm.
Arismunandar 2004, ‘Refleksi 50 Tahun Bank Indonesia: Menuju Independensi Demi Pencapaian Misi dan Visi (Reflection of 50 Years of The Bank of Indonesian: Independence in Pursuing Vision and Mision)’.
Bade and Parkin, 1988. ‘Central Bank Laws and Monetary Policy’. Department of Economics, University of Western Ontario, Mimeo.
Barro and Gordon, 1983. ‘A Positive Theory of Monetary Policy in a Natural Rate Model’, Journal of Political Economy, Vol. 91, No. 4, Aug.
Barro and Gordon, 1984. Rules, Discretion and Reputation in a Model of Monetary Policy, “NBER Working Papers (1070).
Berger, 2000. ‘ ‘Central Bank Independence: An Update of Theory and Evidence’. CESifo Working Paper Series, No. 255.
Berger, Haan and Eijffinger, 2001. ‘Central Bank Independence: An Update of Theory and Evidence’, Journal of Economic Survey, Vol. 15(1), pages 3-40,
Budina, 2001. ‘ Inflation Stabilization, Fiscal Deficits, and Public Debt. Journal of Economic Literature. E63, F34, E52, E41
Brumm, 2002. ‘Inflation and Central Bank independence revisited’, Economics Letters, 77 (205–209).
Campilo and Miron, 1996. ‘Why Does Inflation Differ Across Countries’, Working PAper 5540.
Cukierman, 1992. ‘Measuring the Independence of Central Banks and Its Effect on Policy Outcomes’, The World Bank Economic Review, Vol. 6. No. 1: 35J-J9J.
Cukierman, 1995. ‘Measuring the Independence of Central Banks and Its Effect on Policy Outcomes’, The World Bank Economic Review., Vol. 6. (No. 1: 35J-J9J).
Cukierman, 2006. ‘Central Bank Independence and Monetary Policymaking Institutions - Past Present and Future’, Central Bank of Chile Working Paper, (360).
Eijffinger, 1997. ‘The New Political Economy of Central Banking’, Center for Economic Research,.
Eijffinger, 1998. ‘ Central Bank Independence: A Sensitivity Analysis, “ European Journal of Political Economy, Elsevier, vol. 14(1), page 73 - 88, February.
Fransisco, 2003. ‘Time-Inconsistent Monetary Policies: Recent Research’, FRBSF Economic Literature
Grilli at al, 1991. ‘ Political and Monetary Institutions and Public Financial Policies in the Industrial Countries, Economic Policy, 13, pp. 341-392.
Guerrero, 2007. ‘Japan’s Deflation: A Time-Inconsistent Policy in Need of an Inflation Target’, Journal compilation.
Hafild, 2000. ‘Addicted to Loan: The World Bank Foot Prints in Indonesia’, Briefing Paper
Hayo and Voigt 2005, ‘ Inflation, Central Bank Independence and the Legal System’. Journal of Economic Letter.
Hicks, 2004. ‘Does Institutional Change Matter? The effect of central bank reform on inflation’, Paper presented at the annual meeting of the The Midwest Political Science Association, Palmer House Hilton, Chicago, Illinois.
Hutabarat, 2005. ‘The Determinant of Inflation’, Occasional Paper No. 06.
Ilyas, Achjar 2001.”Independensi Bank Indonesia Menuntut Akuntabilitas yang Tinggi”.‘Indonesia: Economic and Social Update November 2007’, 2007.
Ismihan, 2004. ‘Does Central Bank Independence Lower Inflation?’, Economics Letters, 84 (3).
Jacome, 2007. ‘Is there Link Between Legal Central Bank Independence and Inflation?Evidence from Latin America and Caribbean’. European Journal of Political Economy.
de Jong. E 2002. ‘Why are Price Stability and Statutory Independence of Central Banks Negatively Correlated? The Role of Culture. European Journal of Political Economy, 18, 675 - 694.
Juhro, 2007. ‘Karakteristic Tekanan Inflasi di Indonesia: Pengaruh Dinamis Sisi PermintaanPenawaran dan Prospek ke Depan (Characteristic of Inflationary Pressure in Indonesia: Demand - Supply Side Dynamic Effect in Advance)’.
Lohmann, S. (1992). The optimal commitment in monetary policy: credibility versus flexibility, in “American Economic Review”, 82, March, 273-286.
Lonnberg, 2008. ‘Issues in Central Bank Finance and Independence’, Working Paper 13.
Luis I. J´acome H., 2007. ‘Is there any link between legal central bank independence and inflation? Evidence from Latin America and the Caribbean’, European Journal of Political Economy.
Luna, 2003. ‘Central Bank Independence and Price Stability: Evidence from 23 OECD-countries’, Oxford Economic Papers, 60: 410–422
Murray, 2008. ‘ Measuring inflation – methodology and misconceptions’.
Panagiotidis, 2005. ‘Central Bank Independence and Inflation: the Case of Greece. Journal of Economic Letter. E.58, E. 52.
Pollard, 1993. ‘Central Bank Independence and Economic Performance’, Economics Papers, (21-36).
Prescott, 1977. ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, The Journal of Political Economy, Vol. 85, (No. 3, pp. 473-492).
Rahardjo, 2000. ‘Independensi Bank Indonesia dalam Kemelut Politik (Bank Indonesia’s Independence in Political Turbulence)’.
Restepo, 2000. ‘Central Bank Independence and Inflation: The Case of Colombia, 19241998’.
Rissal, 2000. ‘Independensi dan tuntutan transformasi Bank Indonesia’.
Rogoff, 1985. ‘ The Optimal Degree of Commitment to an Intermediate Monetary Target Author(s). The Quarterly Journal of Economics, Vol. 100, No. 4 (Nov., 1985), pp. 1169-1189 Published by: The MIT Press
Sabirin, S, 2008. ‘Pejuang Independensi Bank’. The Hero of Central Bank Independence Indonesia’.http://www.tokohindonesia.com/ensiklopedi/s/syahril-sabirin/index.shtml
Samiei, 1999. ‘Central Bank Independence and Conduct of Monetary Policy in United Kingdom’, IMF Working Paper.
Summers, 1993. ‘Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence’, Journal of Money, Credit and Banking,, Vol. 25, (No. 2, pp. 151162).
Swasono, 2000. ‘Independensi Bank Indonesia Yang Terbukti Runyam (The difficulty of Indonesian Central Bank)’.
Tambakis, 1999. ‘Effective Central Bank Independence and the Inflation-Output Trade-Off’, Journal of Macroeconomics,, Vol. 21 ( No. 4, pp. 729-753).
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1966-1983)
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1983-1997)
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1997-1999)
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1953-1959)
The Bank of Indonesia, 2008.” The Historical of The Bank of Indonesia (1999-2005)
Triampella, 2005. ‘Central Bank Independence and Inflation: the Case of Greece’, Discussion Paper Series, (7).
Uriarte, 1985. ‘Transnational Banks, and the Dynamics of Peruvian Foreign Debt and Inflation.’.
Vázquez, 2005. ‘Any Link Between Legal Central Bank Independence and Inflation? Evidence from Latin America and the Caribbean’, IMF Working Paper.
Voigt, 2005. ‘Inflation, Central Bank Independence and the Legal System’, ICER Working Papers, (2).
Walsh, 1995. ‘Optimal Contracts for Central Bankers’, American Economic Review.
Walsh, 2003. ‘Monetary Theory and Policy (Second Edition), Cambridge US and London UK: The MIT Press,
Waud, 1995. ‘Central Bank Independence and the Output-Inflation tradeoff’. Journal of Economics and Business, Elsevier, Vol. 47(2), page 137-149, May.
Webb, 1995. ‘Political Influence on the Central Bank: International Evidence’, The World Bank Economic Review, VOL. 9, (NO. 3 ): 397-423
Published
2013-09-23
How to Cite
Andriani, Y., & Gai, P. P. (2013). The Effect of Central Bank Independence on Price Stability: The Case of Indonesia. Buletin Ekonomi Moneter Dan Perbankan, 15(4), 353-376. https://doi.org/10.21098/bemp.v15i4.431
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
