ISSN: 1019-7044
Volume 50, No. 1, June 2025
Published: November 2025
Pages: 332-357
Doi: http://doi.org/10.64204/BP1019-7044/50(1)/A20259
Robin Chandra Paul
The study investigates how variations in Central Bank Independence (CBI) affect inflation dynamics in developing countries. While theoretical arguments suggest that an independent central bank may reduce inflationary bias caused by political interference and time-inconsistent monetary policies, empirical evidence for developing countries remains limited and inconclusive. Employing a two-step System GMM, we identify that higher CBI significantly reduces both inflation levels and fluctuations, supporting its role as a crucial institutional mechanism for sustaining price stability. Moreover, the results indicate that money supply acts as the transmission link in which CBI reduces inflation. These findings underscore the importance of strengthening central bank autonomy to enhance macroeconomic stability in developing countries.
JEL Classification: E31, E32, E51, E52, E58
Keywords: Central Bank Independence (CBI) , Inflation Rates , Inflation Fluctuations , Transmission Channel of CBI , and Monetary Expansion.
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