Central bank independence and inflation:

Running head: CENTRAL BANK INDEPENDECE AND ITS EFFECTS ON INFLATION
CENTRAL BANK INDEPENDECE AND ITS EFFECTS ON INFLATION
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CENTRAL BANK INDEPENDECE AND ITS EFFECTS ON INFLATION
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Table of Contents
1. Introduction..................................................................................................................................5
Aims and objectives.....................................................................................................................5
Research Questions......................................................................................................................6
Research hypothesis.....................................................................................................................6
2. Literature Review........................................................................................................................7
Background of the study..............................................................................................................7
Role of interest rates in the economy..........................................................................................8
Gaps in literature..........................................................................................................................9
3. Methodology..............................................................................................................................10
Outline of the model..................................................................................................................10
Research philosophy..................................................................................................................10
Research approach.....................................................................................................................11
Data collection techniques and analysis plan............................................................................11
4. Data Analysis and Results.........................................................................................................11
Correlation statistics..................................................................................................................11
Regression statistics...................................................................................................................12
5. Conclusion.................................................................................................................................13
Reference List................................................................................................................................15

CENTRAL BANK INDEPENDECE AND ITS EFFECTS ON INFLATION
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CENTRAL BANK INDEPENDECE AND ITS EFFECTS ON INFLATION
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1. Introduction
The independence of central bank is described as the freedom of the monetary policy
makers for direct influence of government and political systems. The aim of the Central Banks is
to be more active and independent of the political considerations that can have a long lasting
effect on the economy. It targets to keep a low rate of inflation irrespective of the situation that
political costs can actually raise the interest rates. The officials of the central banks are appointed
by the government who targets to lower the inflation rate for balanced economic growth and a
positive demand for goods and services. This is mainly done by the usage of monetary policy
where the government tries to balance the business and economic cycle by keeping a lower rate
of interest.
Central banks are actively dependent on the rate of inflation that can effectively change
the banking structures, policies and profits. Inflation denotes the rate at which prices are rising in
the economy with respect to rise in aggregate for goods and services. This rise in aggregate
demand for goods is donated by the availability of money supply in the economy that can
adequately change the price of goods and services in the economy. According to Mishchenko et
al. (2018), the money supply in the economy is effectively controlled by the central banks which
is based on the change in interest rate. The money supply is adjusted by changing the interest
rates that is used as an effective measure for balancing the money supply during inflation.
Therefore, it can be said that the independence of the central bank is governed by interest rates as
they target to keep a lower interest rate.
According to central banks, interest rates are effectively balanced such it impacts the
inflation rates. Interest rates of banks is used an effective tool in controlling the inflation of