Impact of Central Bank Independence on Inflation: A Report

This report investigates the effects of central bank independence (CBI) on inflation rates, examining both empirical and theoretical perspectives. It explores the impact of CBI reforms across various countries, with a focus on developing nations in Latin America and Asia, compared to developed countries in North America and Oceania. The study, based on secondary data analysis, delves into the relationship between governments and central banks, analyzing the benefits of CBI reforms and addressing the issue of time inconsistency in monetary policy. The report includes a literature review, research methodology, data analysis through correlation and regression, discussion, and conclusions, providing a comprehensive understanding of how CBI affects inflation. It also identifies geographical variances in the impact of CBI reforms and suggests recommendations for future research.

Effects of Central Bank Independence on Inflation Rate
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Abstract
The current research has a great significance on evaluating the impact of central bank
independence reforms on inflation within different areas of the world from an empirical as well
as theoretical perspective. The current study had identified the impact of the central bank
independence in different countries. The research had aimed to identify the benefits of central
bank independence and the impact of CBI in different countries. There has been significant
variance in the impact where there are countries that are highly impacted by the policy but there
are countries that do not require central bank independence to reduce their inflation rate. The
results suggest that the scenario in the Latin American and Asian countries are similar as they
belong to the category of the developing countries. On the contrary, the developed countries in
the North America and Oceania have no significant impact due to the central bank independence.
The European countries maintain these policies as they prefer stability in economy and prices.
The African countries are significantly affected by these reforms if central bank is made
independent but the political instability and other scenarios affect the independence

Table of Contents
Chapter 1. Introduction........................................................................................................5
1.1. Research Background...............................................................................................5
1.2. Research Significance...............................................................................................6
1.3. Aim and Objectives of the Research........................................................................8
1.4. Research Questions...................................................................................................8
Chapter 2. Literature Review...............................................................................................9
2.1. Central Bank Independence Concept........................................................................9
2.2. Concept of Inflation................................................................................................10
2.3. Impact of Central Bank Independence on Inflation Rate.......................................12
2.4. Index Structure........................................................................................................14
2.5. Model of Inflation Rate and Central Bank Independence......................................15
2.6. Popularity of Central Bank Independence in Association with Inflation Rate.......17
2.7. Alternatives to Central Bank Independence for Controlling Inflation...................19
2.8. Alterative Explanations of Low Inflation...............................................................21
2.9. Role of the government:.........................................................................................22
2.10. Benefits of CBI-reform:........................................................................................23
2.11. Research Gap........................................................................................................26
Chapter 3. Research methodology.....................................................................................28
3.1 Research philosophy................................................................................................29
3.2 Research Approach..................................................................................................30
3.3 Research Design......................................................................................................31
3.4 Data collection and analysis....................................................................................32
3.5 Sampling..................................................................................................................32
3.6 Reliability and Validity............................................................................................34

3.7 Ethical consideration...............................................................................................34
Chapter 4. Analysis and Discussion..................................................................................34
4.1 Secondary data Set...................................................................................................34
4.2 Correlation...............................................................................................................35
4.3 Regression analysis..................................................................................................53
4.4 Discussion................................................................................................................58
4.5Summary...................................................................................................................59
5. Conclusion and Recommendation.................................................................................59
5.1 Conclusion...............................................................................................................59
5.2 Limitation of the study.............................................................................................61
5.3 Recommendations....................................................................................................62
5.4 Scope of Future Research........................................................................................63
References..........................................................................................................................64
Appendices........................................................................................................................69

Chapter 1. Introduction
1.1. Research Background
In the year 1609, the Bank of Amsterdam facilitated in maintaining a Central Bank precursor
that is deemed necessary in maintaining price stability of nations. The impacts of the “central
bank independence” on the rate of inflation are explained in the research. For explaining the
same, a general overview across several nations have been attained in accomplishing the reaserch
objectives. Moreover, the intention of this study will also be on the issues that are dealt with by
the Central Banks (Gürkaynak, Kantur, Taşand Yıldırım2015). A central bank acts as the
banking institution that has an overall responsibility in order to issue distinct currency, regulation
on the supply of money with managing the “exchange rate”. This has also facilitated supervising
of the commercial banks as well as with several other types of financial institutions. Moreover, it
can also be considered that there exists a positive relationship between the central bank and
government. It has been evident that there are several nations, in which the government has
facilitated implementation of necessary economic policies (Gürkaynak, Kantur, Taşand
Yıldırım2015). This can further encourage the growth and decrease the excessive unemployment
rate. The relationship among the non-independent central bank along with government will
facilitate in evaluation of “central bank independence” reform advantages. The central bank
independence can be referred to freedom of monetary policy resulted from direct political and
governmental influence in the policy conduct. Community institutions and the government
bodies of the member states are observed to undertake the responsibility to respect the central
bank independence principle and do not seek to impact the members of decision making
authorities of the “European Central Banks” or of the national central banks in their respective
task performances. The nature as well as the extent of “Central Bank Independence” might be
evaluated asked on certain considered legal provisions. Conversely, the central bank
independence also hinges on a wide series of factors along with customary practices that is
partially determined by several historical developments within several nations. More specifically,
the manner in which several conflicts with the major bodies of government have been resolved
can have certain influences n the extent to which the central banks is protected in a better manner
against certain external interferences that marks the boundaries of independence.

The objective of this research is to evaluate the relationship among the central banks and
their government along with the impact of inflation in different areas of the world (Berggren,
Daunfeldt, and Hellström (2014). This also supports in the evaluation of a negative association
among the central bank independence level along with the inflation rate. Based on such
explanation all the chapters covered in the research facilitates in explaining the techniques by
means of which the lowering inflation is not observed to be credible in nature. The several forms
of advantages and benefits that will be explained in the research chapters focused on the reforms
of central bank independence (Berggren, Daunfeldt, and Hellström2014).
1.2. Research Significance
The current research has a great significance on evaluating the impact of “central bank
independence” reforms on inflation within different areas of the world from an empirical as well
as theoretical perspective. Focusing on the theoretical section the current research has
significance on evaluating the relationship among the government and the central banks that has
been discussed (Masciandaroand Volpicella2016). This also has a great focus on the role of the
government before the reform of “central bank independence”. In addition, the research has a
great implication on of analyzing the advantages of implementing reforms relied on the issues of
the time inconsistency within the explained monetary policy. This is also followed through
explanation of the reasons for which there can be certain geographical variances in the impacts
of the “central bank independence” reforms on the inflation rates (Masciandaroand
Volpicella2016). Those have dealt with decreased “inflation rates”. Goodhart and Lastra (2018)
stated in supporting this view that CBI results in low interest rates in nations. In addition,
example on the advantageous impacts of central bank autonomy is greater than important and
there are certain technical issues are there for future research. These researchers also explained
that legal along with accurate CBI might be different and for this reason, anticipating legal CBI
that identifies correlation with the inflation rates might not explain the impact of real CBI
(Haldaneand McMahon 2018).
However, the drawback of greater inflation is that at the time there is rise in inflation,
there is depreciation in domestic currency and rise in investment costs. Therefore, the individuals
tend to buy more products and hence, additional loans are needed for compensating for high
inflation (Fernández-Albertos2015). Masciandaroand Volpicella (2016) stated that the “Central

Bank Independence” argues that the independent central banks re related with a decreased
inflation rate and might be accountable for decreasing politically induced monetary policy and
inflation volatility. However, such apparent rational behavior would lead to serious inflation
issue. Various studies have been conducted, in which it has been found that the CBI reforms
have considerable impact in minimizing inflation.
Another implication that the current research has is that the empirical section of the
research is reliant on 130-nation data set from the year 1990 to 2017. Through employing such
data, an econometric model has been developed and employed in order to elaborate the link
among the “central bank independence” reforms and the “rates of inflation” in different areas of
the world (Gürkaynak, Kantur, Taşand Yıldırım2015). Moreover, in order to attain authentic data
it has also been tested whether there is a negative correlation between these two variables. In
comparison to previous research studies, the current study has also focused on analyzing whether
the CBI reforms are highly efficient in reducing inflation in certain geographical location in
comparison to others. The nations within distinct continents have their own different culture,
national condition, economic growth along with the monetary stability tradition. For this reason,
it is observed to be likely that there is a varying relationship between the inflation and CBI
reforms (Gürkaynak, Kantur, Taşand Yıldırım2015). The research is also structured in a manner
that it offers significant results. For attaining suitable research outcomes, the current study has
explained the relationship of the government and a non-independent central bank with a detailed
evaluation of central bank independence reform benefits. The study has also explained the reason
for which there are certain geographical differences in the impacts of central bank independence
reforms on inflation (Gürkaynak, Kantur, Taşand Yıldırım2015).
Detailed explanations regarding the impact of “central bank independence” on inflation
rate are given that will indicate that most of the nations preserve their central banks increased
autonomy. Several reasons have also been recognized for such shift in the direction of a highly
independent central bank. These reasons consider that the exchange rate experiences have
motivated the nations for designating the institutions able to enhance the commitment on the
stability of price objective. Moreover, the central bank independence serves as a precondition for
the adherence to the Euro Zone (Masciandaroand Volpicella2016). Along with the same, the
justified correlation has also been proven by the banks between the independence and the rate of

inflation. The dissertation has also presented several underlying factors for the importance
related with central bank independence over the years. This includes the trend of price
stabilization due to the stagflation marked along with the insignificant economic performances of
several nations that remain characterized by elevated interest rates. Another significant issue
provided by this research has focused on explaining the government’s purpose of maintaining a
higher employment level or financing the budgetary deficits (Masciandaroand Volpicella2016).
This is by means of explaining the hypotheses that has consolidated the view that the efforts to
employ the money for enhancing the output on the potential level are inefficient and result in
increased inflation. Along with such general motives, these can which can be recognized also
regional motives for granting the central bank independence (Masciandaroand Volpicella2016).
1.3. Aim and Objectives of the Research
The aim of this study is to analyze the impacts of “central bank independence” on the rate
of inflation. Focused on this aim certain supporting objectives are set that are to be addressed
after completion of this research:
 To evaluate impacts of “central bank independence” reforms on inflation in distinct areas
of the world
 To evaluate the relationship among the distinct governments as well as the central banks
 To analyze the benefits of implementing central bank independence reforms to deal with
the concern of time inconsistency
1.4. Research Questions
The research questions those are to be answered through completion of this research are
explained under:
 What will be effect of the “central bank independence” reforms on inflation in distinct
areas of the world?
What are the distinct advantages among the various government institutions along with
the central banks?
Considering such research questions, the following chapters will consider carrying out
the literature review, research methodology along with analysis and discussion.

Chapter 2. Literature Review
2.1. Central Bank Independence Concept
Adler, Castro and Tovar (2016) it is stated that the concept of “independent central
banking” goes back as far as the Federal Reserve of US. It turned out to be the situation that the
central bank interdependence remained constant after the decline of the Bretton Woods semi-
fixed rate of exchange in the year 1913. The Central bank independence concept is as set up by
the leading economies in the year 1944 as well as the decision of US to abandon the
convertibility of dollar (Ball, Gagnon, Honohan and Krogstrup 2016). Moreover, the system in
which the holders of dollar have been capable to redeem them from the government in exchange
for gold. In addition, this also stated that the intention of the central bank independence is
focused on insulating monetary policy from the political interference as well as from the
electoral pressure. This in turn is concerned with offering short-term economic growth at the cost
of extended term inflationary cost. It is the characteristics of the data, in which it has been
observed that the average inflation control rate of the overall economy is lower in nature. This is
after and before the type of treatments of the law. According to Laurens, Arnoneand Segalotto
(2016) it has been evident that an increase in the actual growth of the GDP or Gross Domestic
Product of the flexible type of inflation rates which is remarkable type of outcome. It has also
been evidenced by these researchers that the magnitude of GDP effect is high on independence
of central banks. This has facilitated in understanding that certain other forces can facilitate in
contributing in the direction of increase in growth of the actual GDP. Berggren, Daunfeldt, and
Hellström (2014) indicated that independence arising from the fiscal authority is vital as it serves
as a protection against debt monetization. Certain credible government commitment focused on
the central bank is observed to be decreased for decreasing the expense of eliminating inflation.
This is for the reason that it is not that vital to increase the rates of interest gradually. Bode and
Hicks (2015) revealed that there are two models associated with central bank independence. This
includes goal and operational independence. In the former, these researchers also evidenced that
the bank has attained the powers to develop certain effective objectives related with the monetary
policy. This includes stability of price as well as the inflation target. Bodea and Higashijima
(2017) evidenced that one among major instance of same is “European Central Bank” whose
independence is considered as the treaty. There are certain arguments related with the central
bank independence, which considers in case the government has a record of accomplishment of

facilitating inflation then the expectations related with inflation start to increase that further
increases inflation.
According to Bodenstein, Erceg and Guerrieri (2017) in ensuring the central bank
independence the government attempts to make certain weak decisions regarding the monetary
policy. More specifically, they indicated to be greatly impacted by the short-term political
considerations. Prior to any type of elections, there is a high chance for the central government to
decrease all the rates of interest, ensuring boom as well as bust economic cycles are more likely.
Brood and Siklo (2015) supported the view and explained that it is better to develop a monetary
policy in consideration with the government viewpoints. Therefore, arguably, it can be said that
an independent central bank might have an increased credibility. In case the individuals have
increased confidence in the central bank, it can further facilitate in decreasing the inflationary
expectations.
Brunnermeierand Schnabel (2015) evidenced that central bank independence has turned
out to be a major concept within the monetary policy and theory. Most of the economists
advocate that CBI is highly desirable as it facilitates in attaining the long-term objectives related
with stability of price. In addition it can also be thought that alternative mechanisms can be
maintained to attain low inflation rates and in such a scenario “central bank independence” is
generally recommended. Carriere-Swallow, Magud and Werner (2016) presented a view that
“central bank independence” (CBI) is not sufficient and not necessary in order to attain monetary
stability. In indicating that CBI is not vital to attain price stability, it is also pointed out that it is
just a monetary policy design instrument among numerous aspects. Moreover, this might also be
used for attaining such objective and it is concluded that not a single monetary policy design
instrument is optimal within all situations. Brunnermeier and Schnabel (2015) clarified with
regard to sufficiency that CBI might not be traded to be an exogenous variable. More
specifically, it is also thought that very less attention is provided to the questions of the reasons
for which central banks are considered independent. It might also be considered improper to
focus on central bank independence to be the underlying reason for decreased rates of inflation.
2.2. Concept of Inflation
Carriere-Swallow, Magud and Werner (2016) explained inflation as a rate in which
general prices level related with the services and goods is increasing at the same time that the

purchasing power related with the currency is dropping. These researchers also elaborated that
the attempt of the central banks is focused to decrease inflation and deal with deflation in order
for maintaining economy of a nation running efficiently. Del Negro and Sims (2015) considered
inflation as a drastic increase in prices because of a rapid increase of prices because of drastic
increase in the quantity of money. These researchers also regarded inflation as a destroying
aspect arising from the lack of monetary control. The results of the same are deemed to
undermine the rules of business that develops havoc in markets as well as financial ruin of the
prudent. Carrier-Swallow, Magudand Werner (2016) presented a view that there are various
kinds of inflation. This has broadly several determinants, impacts as well as remedies. It is
gathered that hyperinflation is extreme inflation process with yearly price hikes of three digits
percentage points along with an explosive increase. These researchers also indicated that
extremely high inflation might range from 50% to 100%. This is a situation of drastic increase in
price of around 30% to 50% a year. Both such types might be stable or can drastically increase to
result in a situation of hyperinflation. Adding such viewpoint, Carriere-Swallow, Magud and
Werner (2016) elaborated that moderate inflation can be explained differently all through the
world that is associated with distinct inflation history. To serve as an indication, one might
consider inflation moderate at the time it ranges from 5% to the 25-30%. In certain nations, an
increased part of such range is deemed as high inflation.
Carriere-Swallow, Magud and Werner (2016) elaborated that in the macroeconomic
terms, a huge increase in quantity of money especially in case it clearly exceeds nominal growth
of GDP; there exist a risk to increase the recent rate of inflation. In addition, in case there exists
inflation along with real GDP growth that is less than the money quantity growth rate then there
is a consistent acceleration risk unless other aspects are pushing in the opposite direction. In
contrast, they explained that pressure of pro-inflation might also come with certain fiscal deficit
with distinct dynamics relying on the ways of financing the same. These researchers also added
that a vital determinant of inflation supported by expectations on the future inflation rate to an
extent they are broadly accepted and put impact on the process of decision making. This is along
with long and medium term age contracts. Researchers such as Carriere-Swallow, Magud and
Werner (2016) stated that different social groups such as employees and the workers have
distinct inflation expectations along with the aspects, which can be included within wages, and
prices that reflect their balance of power and roles. These researchers explained that the intensity

of inflation within a nation is also relied on the reaction of the central bank. It might also be
relatively lax as well as dealing with moderate inflation or remain tight that is reacting in
advance to earliest programs as well as signals. Carriere-Swallow, Magud and Werner (2016)
gathered that the overall viewpoint of the population, trade unions as well as the business groups
to inflation affects the central banks as well as the major politicians. This can also be less or
greatly independent along with connecting to the interests and views of distinct social groups. In
the same way, a pressure on the government to fix, regulate or cap prices as well as incomes
might result in certain intervention. Carriere-Swallow, Magud and Werner (2016) also added that
inflation might also be the result of a struggle related with real income by the competing social
communities. In this case, the employees demand for higher wages, businesses ask for increased
profits along with the foreigners demand increased prices for their goods. In such scenario, a
mediation of the interests is the major aspect to deal with inflation and implementation of this
type of policy requires developing trust across the business environment along with change of
business routines.
2.3. Impact of Central Bank Independence on Inflation Rate
Berggren, Daunfeldt, and Hailstorm (2014) indicated that there exists a certain negative
relationship between intensity of “bank independence” of central bank as well as inflation.
Conversely, it has also been observed that CBI has no such impact on decreasing the inflation
and there exists a need of distinct investigation required for it as well. Berggren, Daunfeldt, and
Hellström (2014) stated that it might also be observed there are several nations such as North
America, Oceania along with Northern Europe, which can facilitate in realizing the impacts of
CBI on inflation within distinct nations. In addition, there are several types of past studies, which
have supported in recognizing several nations, which dealt with several impacts of CBI reforms.
Berggren, Daunfeldt, and Hellström (2014) revealed that there are several issues associated with
inflation rate, which has to be dealt with. This will facilitate in centering on change of CBI in
place of CBI level. In addition, it can also be observed that several random effects as well as
random coefficient model can be used in indicating that distinct CBI reforms are not important.
Moreover, it can also be stated that CBI reforms was not in connection with the effecting
inflation rate.

The Central Bank of the country is the only institute of the country that can issue
currency as well as it also regulates the monetary supply within the region. Moreover, it also
determines the exchange rate of the currency vis-à-vis other currencies. Furthermore, it also
manages the commercial banks and regulates the interest rate within the nation. There is a special
relationship among government and central bank in which the bank might adopt the resolution
that can be implemented through monetary policy of the bank. It also oversees all the financial
institutions to ensure that such institutions do not act recklessly. It also grants the government,
the privilege to meet its fiscal deficit. During the times of financial crisis, it also acts as the last
resort lender for the commercial banks.
Therefore, a central bank has immense power to determine the inflation rate of a country
when operating independently. As the bank grows more independent, it lowers the rate of
inflation which as a result lowers the variability of inflation without having anyadverse impact
on real GDP as well as unemployment. Therefore, in other terms, when the institute targets the
inflation rate of the company it tries to lower the inflation along with the variability of the same
without impacting the real GDP as well as the unemployment rate. The real GDP growth rate
will grow with its sources targeting the rate of inflation. An institution which targets the inflation
rate more independently is more effective than the bank which does not target the inflation.
Berggren, Daunfeldt, and Hellström (2014) evidenced that the major intention of the
central bank is to stabilize the consumer price index for this might facilitate in maintaining
equilibrium of balance regarding payments, which is global in nature. The economic type of
recession as well as stagflation will result which will affect inflation increase along with money
supply. It has also facilitated in developing effective monetary policy, which might deal with
inflation rate. Moreover, these researchers also stated that this might be helpful for the central
bank in developing a positive effect on the inflation rate as well. Berggren, Daunfeldt, and
Hellström (2014) elaborated that there are numerous impacts of inflation on the long-term
growth in which there are different kinds of research that has been carried out. This has also
facilitated in relating the overall relationship among economic growth and inflation, which can
facilitate in analyzing that decreased inflation rate, is good for the overall economy
growth.Berggren, Daunfeldt, and Hailstorm (2014) also commented that there is valuable
research that has been carried out in which it has been the scenario that basic funding considers

higher inflation rate that goes along with economic growth that is low in nature. These research
studies also stated that there are drastic impacts of increased inflation rate on distinct economic
outcomes which is vital in nature. These researchers also indicated that such pattern has
facilitated in indicating that the inflation rate is in increased amount that is more than 15% to
20% which, might not be isolated. Moreover, this might also need additional effort in making the
inflation rate highly effective.
Berggren, Daunfeldt, and Hellström (2014) indicated the new type of index related with
independence of central bank along with targeting of influence has limited linkages, which might
be evaluated in a better manner. The overall innovative type of index of central bank
interdependence along with targeting which was carried out in a better manner is considered as a
sum of numerical values, which is allocated to around thirty-eight arrangement and is
institutional. According to Berggren, Daunfeldt, and Hellström (2014) it has been observed that
there are several examples in which the organizations require to realize the concerns among the
central bank independence along with inflation rate. There are several issues within inflation
rate. This includes distinct type of source of pillars those are analyzed and recognized in a better
manner. These researchers also elaborated that the interdependence of central bank has to be
evaluated in a way that supports the organizations in dealing with the concern of increasing
inflation rate. Such type of services has to be evaluated as this might encompass the involvement
of three distinct pillars of central bank interdependence as well as inflation rate.
2.4. Index Structure
According to Masciandaroand Volpicella (2016) there are three different kinds of pillars
of the overall index which encompass the legal as well as political type of central bank in which
the central bank interdependence indicates the distinct freedom and flexibility. This is also
needed to be permitted to the overall central bank by means of legislation. These researchers also
stated that there are numerical empirical findings, which is facilitated in evaluating the central
bank that refers to distinct legislative protection. This is associated with various policies and
operational formulation type of activity in a manner or process which is needed being enforced.
Masciandaroand Volpicella (2016) stated that in such scenario law would be enforced in an
effective way. These researchers also indicated that the second type of pillar is considered as
central bank conduct focused on the monetary policy along with governance conduct. This is

also deemed to encompass distinct type of features, which might encompass strategies of
monetary policies along with the objectives related with the same as well as exchange rate in a
better manner. This type of secondary pillar can facilitate in the bank supervision along with
fiscal and financial independence. Masciandaroand Volpicella (2016) indicated that the third
pillar of the overall index is the transparency of central bank and accountability. The
transparency within central bank will facilitate in realizing the degree of the overall monetary
policy along with policy decision process by the public in a better manner. Masciandaroand
Volpicella (2016) elaborated that it has greatly been observed that the central bank have been
related with distinct type of secrecy for the reason that the central bank will turn out to be highly
independent and responsible. There are several concerns over independent central banks that are
indicated below:
 Sticking rigidly to the wrong targets and the commercial banks has been criticized for
sticking extremely rigidly to the target attaining low inflation at the Europe has much
bigger issues with unemployment along with low economic growth.
 Economic policy is developed by the unelected officials
 Concerns regarding broader effect of monetary policy, for instance, impact of low interest
rates on distribution of income between savers and the borrowers.
 As the central banks were made independent and there has been a variation in the
economic environment. Inflation along with the booms is no longer an increased concern.
Rather than that, the issue is related with one of the secular stagnation along with
prolonged liquidity trap.
2.4 Short run Philips curve trade off
The price stability mandate causes the central bank to become more independent
and with the adoption of the inflation targeting, short-run macroeconomic activities will have
only two possible changes. The first change is the fall of the expected inflation which will result
in the lowering of the inflation rate and there will be no significant changes in the unemployment
rate of the country (Volpicella 2016). This defines the downward movement or shift of the short-

run Philip curve. Another possibility is that there might be fall in the actual inflation rate which
will result in no change in the expected inflation rate. This means that there will be steep increase
in the unemployment rate which means that there will be downward movement along the short-
run Philip curve. These possibilities have been described in graphs where long-run and short-
run Philip curves are shown at the employment rate. The tradeoff faced by the central bank is
denoted by the short run Philip curve where the unemployment rate and inflation rate are given
factors. It is viable for the monetary policy to deliver or meet any inflation target where natural
unemployment rate has been considered. The changes in inflation can be brought about by two
paths and in case of central bank they can move one point to another, either by keeping the
unemployment rate constant or by lowering the inflation rate. The lowering of the inflation rate
will result in the downward movement of the Philip curve and prevents rise of the unemployment
rate beyond the natural rate.
When the central bank reduces the inflation rate before the fall of the expected inflation
rate, then there is a downward movement in the economy. The transition from the higher rate of
inflation to the lower rate of inflation will result in the decrease of the unemployment rate
directly. A recession is generated if the central increases the interest rate and slows the speed of
monetary expansion and does not take any steps to reduce the inflation rate of the country. The
short term Philip curve signifies the temporary tradeoff and is used in case of the change in the
expected inflation rate. The actual inflation and the expected inflation rate becomes equal in the
long run. The durability of the second tradeoff is higher for the central bank.
2.5 Long run Taylor curve trade off
The Taylor curve defines the variability between the inflation rate and the variability of
the output. The x axis is the Taylor graph measures the variation in the inflation rate and the y
axis measures the variation in the aggregate output considering the standard deviation over the
same time period on both the axis (Arnoneand Segalotto 2016). The tradeoff faced by the central
bank is defined by the Taylor curve. It is the frontier of efficiency where tradeoff below the
point is attainable and above that point the efficiency of tradeoff is very low. The monetary
policy that lies on the curve result is the most effective policy for tradeoff.
The target inflation can manipulated by allowing wide fluctuation of the output and this
monetary policy will result in the rise of the inflation rate and decrease in the GDP falls. The

purpose of the central defines the monetary policies where if the purpose of the policy is to
increase the aggregate demand, then there will fall in the overall real GDP of the country. In the
case of a negative supply shock, if the central bank reduces the aggregate demand of the
products, then there is rapid increase in the inflation rate of any economy. The feature of the
economy defines the shape and position of the Taylor curve which also includes the exogenous
shocks of different persistence and size, the degree of price rigidity and wage and transparency
and credibility of the monetary policy (Masciandaro and Romelli 2015). The major aim of the
central bank is stability of the prices and it will affect the transparency and credibility of the
monetary policy. The independence of the central bank will determine the Taylor curve for the
study. The Taylor curve will also be affected due to the long term economic growth and low rate
of inflation.
2.7. Model of Inflation Rate and Central Bank Independence
Laurens, Arnoneand Segalotto (2016) stated that the overall existing evidence on
improved performance of the “central bank’s independence” which does not suggest qualified
access. Conversely, there are several type of cases in which the indices consistency are relied in
distinct type of interpretations of the central bank independence statuses that further facilitates in
evaluating and measuring central bank’s independence. Laurens, Arnoneand Segalotto (2016)
evaluated that there are several correlations among the “central bank independence” and the
performance of several types of variables, which is highly macroeconomic in nature. It is the
characteristics of the data, in which it has been observed that the average inflation control rate of
the overall economy is lower in nature. This is after and before the type of treatments of the law.
According to Laurens, Arnoneand Segalotto (2016) it has been evident that an increase in the
actual growth of the GDP or Gross Domestic Product of the flexible type of inflation rates which
is remarkable type of outcome. It has also been evidenced by these researchers that the
magnitude of GDP effect is high on independence of central banks. This has facilitated in
understanding that certain other forces can facilitate in contributing in the direction of increase in
growth of the actual GDP. Laurens, Arnoneand Segalotto (2016) explained that there are several
types of curves, which is deemed to encompass distinct types of concerns that facilitate in
understanding these concerns in a better way.

The distinct type of central bank independent has facilitated in realizing as well as
evaluating that a high degree and level of central bank political and legal type of independence.
Laurens, Arnoneand Segalotto (2016) stated that it facilitates in evaluating the economic
literature, which supports in analyzing effect of “central bank independence” in a better way. It
also supports in making sure that there exist a negative type of association among the “central
bank independence” aspects. These researchers also indicated that there is distinct type of
contributions, which is needed to be made in a better manner. In addition, it must also be
considered that certain variation in the interest rate can be measured by realizing the considerable
variations in the inflation outcomes in a better manner. According to the views represented by
Laurens, Arnoneand Segalotto (2016) it is clear that distinct type of empirical results and data
can facilitate in understanding the association among the “central bank independence” and the
“inflation rate”. The existent distinct types of evaluation have facilitated in realizing the fact that
the association between the two factors are present. Moreover, it can also facilitate in evaluating
an increased effect as well as impact of “central bank independence” on the “rate of inflation”.
Figure 1: Impact of Inflation Rate on Central Bank Independence
(Source: Masciandaro and Romelli 2015)

2.8. Popularity of Central Bank Independence in Association with Inflation Rate
Masciandaroand Volpicella (2016) stated that the “Central Bank Independence” argues
that the independent central banks are related to a decreased inflation rate and might be
accountable for decreasing politically induced monetary policy and inflation volatility. For this
reason, it might also be stated that it might be assumed that CBI concept is a new concept. These
researchers also stated that the indicators related with economic independence encompass the
existence or lack of an overriding mission. Masciandaro and Romelli (2015) added that
economic independence indicators also encompass the exchange rate parties as well as the
monetary policies, the interdiction or obligations for lending money to the government along
with the budgetary process. These researchers also stated that the economic independence
indicators encompass the existence of an overriding mission. This also encompasses the inability
as well as ability of the banks in controlling interest rate moves, parities of the exchange rate
along with the monetary policy instruments at the disposal. Moreover, it is used without
restriction than the degree of economic independent from the major executive is high.
Laurens, Arnoneand Segalotto (2016) revealed that the money as well as the
capital market acts as the subsystems of the financial system. Through monetary policy of the
regulating credit and money, conditions and the central bank can affect the financial system
through the money market. This further facilitates in strengthening an economy serving as the
most critical function of the central bank. Laurens, Arnoneand Segalotto (2016) also added that
in order to conduct such an important function the central bank is focused on the dietary policy
instruments such as interest rates, reserves, and money and inflation rates within the nation.
These researchers also stated that the central bank or the federal government indicates the
monetary and the fiscal subsystems drastically. The central bank as well as the monetary policies
is not just the impacts of the inflation; along with that, the fiscal wages and policies are
considered important. According to the views presented by Laurens, Arnoneand Segalotto (2016)
there is a significant premium on the efficient consultation as well as the co-organizations.
However, these researchers have also identified certain concerns related with the independent
central bank. It is observed that independent central banks rigidly stick to the wrong targets.
There are several central banks that have been criticized for sticking rigidly to the low inflation
target in case the nation has much higher issues related with unemployment as well as decreased
economic growth. In contrast, Laurens, Arnoneand Segalotto (2016) explained that in the

independent central banks the unelected officials set the economic policy. These researchers also
discussed that concerns related with greater effect of the monetary policy. For instance, there is
an effect of low rates of interest on the distribution of income between the savers as well as the
borrowers.
Laurens, Arnoneand Segalotto (2016) presented a viewpoint that as the central banks
were made highly independent there has been a great change in the economic surrounding.
Booms as well as the inflation no longer serve as a vital concern. Rather than that, the concern is
one of the secular stagnation as well as extended liquidity trap. Although the central banks are
observed to be, independent it is vital to keep in mind that resetting the targets is possible. In
addition, the central banks of any nation must be provided a broader brief rather than just
centering on the inflation. There are certain arguments for central bank intelligence those are
explained under:
 Governments tend to make certain weak decisions regarding the monetary policy. More
specifically, they tended to get impacted by some short-term political considerations.
 Before an election, the temptation is meant for a government to decrease the interest
rates, ensuring growth along with enhancing the economic cycles more likely. Therefore,
for this reason it is better to take the monetary policy out of the government’s possession.
 In case the government has a track record of facilitating inflation, then expectations
regarding inflation start taken place that increases the inflation rate to a great extent.
 An independent central bank might have an increased credibility. If people have an
increased confidence within the central bank this facilitates in decreasing inflationary
expectations. In turn, this makes inflation simpler to maintain it low.
2.9. Alternatives to Central Bank Independence for Controlling Inflation
 Fixed Exchange Rates, Monetary Union and Currency Boards
According to the views presented by Hall and Reis (2015) it is gathered that an individual
might doubt the importance of “central bank independence” in case they contract it to certain

alternative instruments to attain stable as ell also inflation rates. Among such existing
instruments generally employed, emerging as well as developing nations serves as fixed rate
choice of exchange as the strategy of “monetary policy”. Hung and Thompson (2016) supported
the explanation and stated that through delegating the monetary policy as an effective inflation
controller like the “Federal Reserve Bank” of US in which the nations import integrity of such
specific central bank. This is generally considered as the sameas employing a central banker as
an “independent monetary policy” is not that suitable with fixed exchange rate at total “capital
mobility”. Sims (2016) gathered that more importantly, governments attaining the authority of
exchange rate could take such decisions with or devoid of central bank approval.
 Inflation Contracts and Targets
Rey (2015) indicted that the idea of exchange rate fixing is not new; there are new
concepts within academic explanation of the “monetary policy” that might be observed to be
suitable alternative to CBI. This might also arrive as an important option for the CBI and can
come in low cost to community, as there is less degree of shocks stabilization that is same in
situation of the conservative central banker. Sidiropoulos and Spyromitros (2014) the inflation
bias might be dealt with through developing a contract on a “central banker” which forces to
offer a penalty in case the monetary policy getting employed to deal with unemployment along
with its use for supporting stabilization. While the “monetary policy” might totally account for
certain “economic shocks” and constant inflation might vanish. Mazhar and Méon (2017)
gathered that in reality it might rather be complex to rather such type of central bank contract. It
might also need total information regarding the preferences related with the central banker that is
capable to correct for marginal incentives to develop sudden inflation. It might be complex to
explain such shocks those support in the stabilization policy scope. For this reason such contract
can result in conflicts regarding the intensity of monetary expansion remains in consideration to
central banks competence area.
Masciandaro and Romelli (2015) revealed that a better practical solution is better for
implementing a target of inflation to central bank. Such a solution is implemented greatly by
nations like UK, Australia, Sweden, Canada and Israel that is revealed in association with
normally “independent central bank” might get realized as opposed to independence. These
researchers also revealed that in such a scenario, the government develops a target focused on the

“inflation rate” such as 2% over short to medium term to government or the central bank, which
negotiates a target. Masciandaro and Romelli (2015) explained that in case the central bank fails
to meet such a target it will have to justify its collapse and in certain cases it is overlooked as the
central bank president loses job due to business collapse. In such manner, an individual focuses
on attaining a decreased as ell s stable inflation rate through holding central bank such as in
agreement solution resulting in an increased rate of inflation.
 Labor Market Institutions
Papadamou, Sidiropoulos and Spyromitros (2017) evidenced that the underlying
evaluation focused on the desirability of central bank independence (CBI) is relied on the
experience of US with several weak labor unions. In this case, there is observed to be no
strategic interaction among the central banks and labor markets. These researchers also focused
on the point that in case the labor instead is not atomistic they must also expect that labor unions
internalize largely along with the negative impacts of high wages of inflation and employment.
According to Masciandaro and Romelli (2015), it has also been argued that fixed exchange rates,
currency board as well as the monetary union are broadly used mechanism to enhance the
reputation of the central banks. Most current developments include the emergence of the
inflation contracts with the central bankers along with inflation target implementation. Hayoand
Neuenkirch (2015) stated that there are issues associated with inflation that are to be addressed.
This is because this will facilitate in centering on change of CBI in place of CBI level. In
addition, it can also be observed that several random effects as well as random coefficient model
can be used in indicating that distinct CBI reforms are not important. Moreover, it can also be
stated that CBI reforms were not in connection with the effecting inflation rate.
2.10. Alterative Explanations of Low Inflation
Gürkaynak, Kantur, Taşand Yıldırım (2015) explained that central bank independence
serves as an endogenous variable and there are studies in which it has been gathered that low
inflation rates and CBI are correlated. It has also been clear from the previous research that there
is a negative relationship among the nations with highly “independent central banks”. Those
have dealt with decreased “inflation rates”. Goodhart and Lastra (2018) stated in supporting this
view that CBI results in low interest rates in nations. In addition, example on the advantageous
impacts of central bank autonomy is greater than important and there are certain technical issues

are there for future research. These researchers also explained that legal along with accurate CBI
might be different and for this reason, anticipating legal CBI that identifies correlation with the
inflation rates might not explain the impact of real CBI (Haldaneand McMahon 2018).
Monetary policy is employed to be managed by the government and in contrast, in the
current years there is observed to be a trend that can give monetary policies to the independent
central banks. The idea is that central banks will be to be more independent of political
considerations and willing to maintain inflation low even if there is present in certain political
costs. The central bank official is appointed by the government and is offered with broad
guidelines. The perception was that when the government was responsible for settling the interest
rates there was a political business cycle. This indicates that the incumbent government was
intended to impact the economic cycle in order to coincide with the elections. In addition in
loosening the monetary policy can result in the economy to grow faster than the trend of long-run
that results in inflation based pressures. At the time the election is won, the government can
increase interest rates to decrease the inflation. At the time the election is won, the government
can enhance interest rates to decrease inflation. It leads in a recession; there is time for economy
to recover before the election.
2.11. Role of the government:
A close correlation could be observed between central bank and government. In the
majority of the nations, the government is most likely to adopt expansionary economic policy for
encouraging economic growth along with minimizing unemployment. However, expansionary
economic policy might lead to deficits in budgets, which could compel the government to
borrow from the central bank in order to resolve short-run deficit issues (Adler, Castroand
Tovar2016).
In addition, a rise in these issues could be observed during elections. More precisely, in
order to obtain additional votes in any new election, there is a high chance that the politicians
would attempt to raise the rate of employment for appeasing citizens by utilizing “short-run
trade-off” among inflation and unemployment (Bernanke et al. 2018). As a result, it might lead
to latent inflation issue, since the monetary policy would result in loss of credibility.
Furthermore, a pattern is inherent that the rate of unemployment generally increases and there
would be decrease in inflation after election.

In the short-run, the governments could seek advantages from the central bank for raising
inflation and money supply. The diversification of government expenditure could be financed
with the help of credits from central banks that are not independent, which implies printing
money and raising monetary supply (Bodeaand Hicks2015). Despite these, the purchasing power
of the currency would be minimized due to inflation, which could relieve the actual value of the
budget deficit in the government. Henceforth, majority of the governments in the global arena
opt to utilize expansive economic policy, which is funded by money supply from central bank
that is devoid of independence, despite the fact that it could lead to inflation.
However, the goal of the central bank policy aims to stabilize the consumer price index
along with driving economic growth and maintaining equilibrium of the balance of global
payments. Economic recession and stagflation would be caused with the rise in inflation and
money supply. Based on the above evaluation, a central bank that is not independent would
follow the policy of the government blind-sighted and this would acts as impediments to the
tasks to be accomplished (Bodeaand Higashijima2017). Only in case, the central bank obtains
independence while eradicating the government intervention, it could have the ability to design
reasonable monetary policy for combating with inflation, resisting with reckless treasury
overdraft of the government and maintaining a steady value of currency.
2.12. Benefits of CBI-reform:
Based on the above discussion, it has been evaluated that even if the central bank
is dependent, there would be occurrence of inflation when expansionary economic policy is
adopted on the part of the government (Ball, Gagnon, Honohan and Krogstrup 2016). However,
the drawback of greater inflation is that at the time there is rise in inflation, there is depreciation
in domestic currency and rise in investment costs. Therefore, the individuals tend to buy more
products and hence, additional loans are needed for compensating for high inflation (Fernández-
Albertos2015). Masciandaroand Volpicella (2016) stated that the “Central Bank Independence”
argues that the independent central banks re related with a decreased inflation rate and might be
accountable for decreasing politically induced monetary policy and inflation volatility.
However, such apparent rational behavior would lead to serious inflation issue. Various studies
have been conducted, in which it has been found that the CBI reforms have considerable impact
in minimizing inflation. Henceforth, the benefits of CBI reforms are demonstrated as follows:

 Due to the differences in the functions of central bank along with government, it is
obvious that the emphasis of the government would be more on economic growth and
unemployment, instead of independent central bank. After independence, it becomes
possible for the central bank in regulating the money supply size in accordance with the
independent money demand (Laurens, Arnoneand Segalotto2016). Hence, it minimizes
the risk related to overheated economy. It could stabilize the actual domestic currency
value. In opposition, it is likely that a dependent central bank could develop a suitable
policy.
 After the reforms of the CBI in the form of more objective and professional institution, a
central bank enjoys benefits over governmental agencies at the time of developing
monetary policy. For example, it could avoid mistakes and negligence in policy, which
are framed on the part of the policy makers along with assuring the total impact of macro-
economic controlling and policy (Martin2015).
 The reforms of the CBI could enable in preventing variations in macro economy. The
politicians are involved in bribing the voters before elections by utilizing expansionary
economic policy, reduced rates of unemployment, boosting consumption and
investments. However, after the elections are over, stringent policies are adopted by the
politicians for combating with inflation, which might induce economic variations
throughout the nation. The government or the politicians should not affect the
independent central bank; however, consistency as well as stability in price level and
monetary policy needs to be assured.
 The reforms of CBI could minimize the issue of budget deficit monetization. In the
absence of independence, close correlation could be observed between monetary policy
and fiscal policy. For example, the central bank would attempt to minimize the rates of
interest in the market for reducing the governmental lending cost or lending directly to
the government according to the needs of the fiscal policy (Rey2015). This signifies
initial indication of budget deficit followed by budget deficit monetization and inflation.
Therefore, the reforms of the CBI are crucial for resisting political pressure from the
government.
 After the reforms of the CBI, it is possible for the central bank to undertake precise
execution of policies in branches for assuring the consistency between execution and

policy decision and hence, the effectiveness and efficacy at the time of enforcing policy
could be improved (Masciandaroand Romelli 2015).
 If adverse relationship is observed between CBI level and inflation, minimizing the rate
of inflation could be accomplished by enforcing CBI reforms. From the theoretical
viewpoint, time consistency issue could be observed in monetary policy, if enforced on
the part of the dependent central bank. More precisely, if there is accomplishment of
lower target of inflation, the policy makers have incentives of deviating from policy of
lower inflation, as it is popular from the political point of view in accomplishing lower
unemployment (Sims2016).
 In order to safeguard the central banks from political influence, independence has
been awarded to them. This is applicable only if they adhere to the terms and conditions
of price stability (Ball, Gagnon, Honohan and Krogstrup 2016). This adherence is
extremely beneficial for achieving lower inflation rate, which enhances the financial
stability. Post financial crisis era witnessed the rising importance of monetary policy
mandates, which the banks need to comply with. It has been found that the central banks
planned to focus on the areas of macro and micro-prudential supervision and crisis
management. According to the critics, the central banks over-exploited their mandates,
which compelled them to develop monetary and fiscal policy (Ball, Gagnon, Honohan
and Krogstrup 2016).
 Inflation arises when the prices of the goods and services arises. This is calculated
according to the conditions of Consumer Price Index (CPI). The goods and their price
rates are dependent on the consumption behavior of the customers. Differentiation exists
as per the consumption habits of the country population. Rise in the prices of the goods is
inversely proportional to the purchasing power of currency (Ball, Gagnon, Honohan and
Krogstrup 2016). Therefore, rise in the prices of the products simultaneously reduces the
power of the currency. For the central banks, deflation is a common issue, which strains
the economy. Therefore, limiting inflation is the innovative solution towards contributing
to the economy.
 Federal’s reserve consider data on inflation that do not consider volatile industries
like food as well as energy prices. External market forces adversely influences the prices
of foods and energy resources (Ball, Gagnon, Honohan and Krogstrup 2016). However, it

does not bring any significant change in the overall inflation rate. If the current condition
of these industries is kept aside, the readers can get a clear view of the prevalent inflation
rate. Communication helps the staffs of the Federal Reserve to maintain consistency in
the inflation rate. This communication also results in planning for the maintaining the
stability in the prices of the goods and services.
 Adherence and compliance to the monetary policies is crucial in terms of averting
the instances like inflation. Typical example of this is expansionary policy, which lowers
the interests through open market investments (Ball, Gagnon, Honohan and Krogstrup
2016). However, varying nature of the market aggravates the complexities towards
implementation of this policy. Establishment of independent and autonomous banks
assists in avoiding the external pressures.
 Some of the critics propose a negative relation among “central bank
independence” and inflation. They consider that disparity within the developed and
developing countries would not have any effect on the inflation. This would nullify the
independence provided (Ball, Gagnon, Honohan and Krogstrup 2016). Once the low
inflation target is achieved, the policy makers have a choice to deviate from the terms and
conditions of the low inflation policy. This aligns with the common perception related to
the low unemployment. Under this condition, optimal policy does not seem to be
effective in terms of stabilizing the inflation rate.
 Reforms have been considered to bring noticeable effects on inflation. Countering this,
the reforms can lower the inflation rate (Ball, Gagnon, Honohan and Krogstrup 2016).
Apart from this, it can stabilize the price level, but this occurs only in the countries with
high inflation rate.
2.13. Research Gap
From analyzing previous research on “central bank independence” impact on
“inflation rate” it has been gathered that there are very few studies that have focused on the role
of central banks in controlling inflation within economies (Doumpos, Gaganis and
Pasiouras2015). Focusing on such a research gap this study will address such limitation through
explaining the necessary central bank independence reforms that affect the inflation rates of
economies. To address the research gap, the current study has explained the central bank
independence inflation relationship is not that elaborated through early economic conditions

(Ball, Gagnon, Honohan and Krogstrup 2016). This also exists after dealing with the fiscal
performance along with quality of “economic reforms”. Moreover, previous research studies
have also failed in explaining the ways in which the central bank takes control over the monetary
base and money development determines the inflation behavior (Ebeke and Fouejieu 2015).
They also did not focus on explaining in detail that at the time the central bank did not use
reserves as instrument or money like an indicator, related operating processes maintains a
classification with respect to the monetary control. Focused on such research gap, the current
research has explained that the central bank attains such control through maintaining anticipated
inflation equal to the inflation target. Through maintaining the actual rate of interest equal to the
natural rate, the central banks are deemed to deal with the monetary emissions that result in
certain undesired change in the prices.Based on the discussions carried out in the literature
review, a conceptual framework is developed under that has facilitated in testing relationships
among the variables in this research.
Figure 2: Conceptual Framework
(Source: Authors Note)
Central Bank
Independence
Reform
Gross
Development
Product
Inflation Rate

Chapter 3. Research methodology
The framework within which the research is conducted is known as the research
methodology. Research design, general classification, purpose of the study and nature of the
study are factors which will define the chosen methodology. As defined by Saunders (2011),
various elements of the Research Onion framework have been discussed in the research. The
Research onion has been used to unfold the different methods used in a step by step manner to
reveal the findings. Research can be divided in two types, such as applied research and
fundamental research based on the nature of the present research (Bryman and Bell 2015).
According to the scope of the research topic, fundamental research is the most appropriate
method for developing significant result in the study.The findings of the research do not have
practical implication for different managers working in the banking sector. Research objective is
also chosen based on the objective of the study. Generally, a study aims to fulfil one of the
following three factors; one is the description of behaviours, second is prediction from one
variable to another variable and third is establishing the causal relationship between two
variables. In this study, experimental has been used to establish the causal relationship between
the central bank independence and inflation rate.However, the impact of the central bank
independence on the inflation rate will be analysed.

Figure 1: Research Onion Model
(Adapted from theSource: Kou, Jia and Wang 2013)
3.1 Research philosophy
The general awareness of the research will create beliefs and assumptions which
are dealtwith by the philosophy of research. Research philosophy addresses the different
methods of data analysis and collection (Hughes and Sharrock 2016). Realism, interpretivist,
positivism and pragmatism are the different kinds of research philosophies. In this current study,
the chosen research philosophy is positivism as the study prove the hypothesis developed based
on the theories. The basic activity in positivism philosophy is observing the phenomenon and
collecting data based on it. Positivism collects data which is quantifiable and observable so it
can assume that the study is objective in nature (Rosenberg 2018). However, in this current
scenario, the secondary quantitative data and qualitative data will be used to deduce the develop
hypothesis. The study has used quantitative data available on authentic websites and peer
reviewed journals to develop relevant findings.
Figure 2: Research Philosophy

(Source: Hughes and Sharrock 2016)
Justification for choosing positivism
In this current study, positivism has been chosen as the research philosophy as it
perceives the whole world as independent and real, and the organizations are represented as
discrete entities. Positivism advocates unity in the method used in social and natural sciences
where same scientific method can be used to study the society and nature (Rosenberg 2018). The
aim of the study is to develop an econometric model; and positivism has been used to give
primacy to statistical modelling to develop results that are generalizable and quantifiable.
Economic models are developed based on the existing secondary data to create systematic
relationship. The developed equations are developed from existing data and proved using data
available from the secondary sources. These data sources are quantitative data sources so
positivism is an appropriate choice. Econometric models are just economic measurements
optioned by using appropriate statistical techniques. Positivism is a justified method also because
of the value- free view of science. Moreover, using this philosophy the results had been analysed
by taking into consideration criteria’s like generalizability, validity and reliability.
3.2 Research Approach
Research approaches are of three types such as Inductive, abductive and
deductive (Stage and Manning 2015). In abductive approach, the study starts with the
presentation of surprising facts which are proven by providing relevant data and analysis on
validating the facts. However, the difference between deductive and indicative approach is based
on the significance of hypothesis testing in the given research. Inductive approach is used for
development of new theories and generalisations. The inductive approach will conduct analysis
of relevant peer reviewed journals and articles to develop data where by exploring the data new
tentative hypothesis will be developed (Aneta and Jerzy 2013). However, the major drawback in
this kind of research is that the chances of not obtaining significant results are high. Therefore, in
this current study, deductive approach has been chosen the approach as it will facilitate in
conducting quantitative analysis of data. Moreover, the deductive approach will develop the most

suitable strategy for developing to validate the causal relation between the central bank
independence and inflation rate (Pearl 2014). The research had established a link between
variables and the result had been compared with the theoretical results to observe whether the
observed and expected patterns have any deviations or not.
Figure 3: Research Approach
(Source: Stage and Manning 2015)
Justification for selecting the deductive approach
The deductive approach is the appropriate methodology for the research as it
facilitates in conducting hypothesis testing and improves the observational scope. The deductive
approach is less time consuming, less costly and less risky as it ensures that a significant result
will be obtained from the study (Pearl 2014).
3.3 Research Design
Research design has been defined diversely by different authors. There are some
authors that consider research design as the choice between qualitative and quantitative data
analysis. However, some consider it as the method of collecting data and analyzing them
effectively. Exploratory and Conclusive are the two research design used in social and natural

research studies. The current study will use conclusive research as the research has already
defined the results that needs to be obtained. The study had used secondary data analysis to
prove the hypothesis defined in the literature review and the first chapter of the study.
Conclusive research design has been further divided in two parts, one is causal and another is
descriptive research design (Marczyk, DeMatteo and Festinger 2017). The study had used the
causal research design to prove the relationship between the data collected.
3.4 Data collection and analysis
In this current study, secondary data has been collected from authentic web
articles, peer reviewed journals and articles. The secondary data comprises of the data set from
130 countries from the year of 1990-2017 from the banking sector to identify the impact of
central bank’s independence on the inflation rate. In this current study, the collected data will be
used to develop descriptive statistics such as mean, mode, median and standard deviation. The
research will also conduct a regression analysis between the central independence and inflation
rate in different countries to evaluate the degree and the nature of association between the
variables. In order to calculate the regression analysis and other statistical analysis the study will
use SPSS as the statistical tool of analysis.The study has also calculated the correlation between
the GDP and Inflation rate by keeping the central bank reforms as control variables. The control
variable are those variables that are kept constant in the research and has high influence in
experimental research. In order to understand the exact impact of central bank’s independence,
establishing the relationship between inflation rate and the gross domestic product is a key aspect
of the drawing conclusions.
3.5 Sampling
In sampling, the whole population is minimized to obtain a sample population
from the study. Sampling is conducted to reduce the sample size significantly as analysis of large
population sample is complex, cumbersome, expensive and time consuming. Selection of
elements from the total population is known as sampling. Probabilistic and non-probabilistic
sampling are the two methods of choosing samples. The different types of sampling method in
probabilistic sampling are simple random sampling, stratified sampling, systematic sampling
and cluster sampling. Simple random sampling randomly selects samples from the overall
population. In stratified sampling, the sample population is divided into homogeneous subgroups

that are mutually exclusive to each other (Levy and Lemeshow 2013). The elements for the
sample population will be randomly selected from each of the developed strata.
Systematic sampling is the method where a random starting point and a fixed interval is
set, and samples are selected randomly from these interval. Lastly, in cluster sampling, the
sample data is divided into clusters which are randomly selected as the sample population. Non
probabilistic sampling is divided into quota, purposive, volunteer and haphazard sampling (Levy
and Lemeshow 2013). Sampling consists of specific stages while selecting the elements from the
overall population in the research. The first aspect is the target population definition which
signifies the elements that are best positioned to carry out the research and in this case, 200
countries have been chosen as the target population. Secondly, the sampling frame selects the
most appropriate elements out the sample population and in this scenario, developed and
developing countries have been selected. The next stage is choosing the sampling size and in this
research, the sample size has been restricted to 130. In this current study, simple random
sampling has been used to select population samples from 200 countries and have been narrowed
down to 130 countries. Randomization is the basis of data collection in the study where the
sample population had to be reduced to facilitate reduction in complexity in research. Simple
random sampling facilitates in eliminating bias and has provided equal opportunity to all the
participants of being selected in the research.

Figure 4: Research Sampling
(Source: Levy and Lemeshow 2013)
3.6 Reliability and Validity
The ability of the research to replicate the result by using different data sets is
known as reliability (Csikszentmihalyi and Larson 2014). Reliability testing has been conducted
in the research in order to check the internal consistency of the data. The study has used the test
retest reliability to examine the consistency of the data.In this current study, initially the data
from different countries has been put into the developed econometric model to calculate whether
similar relationship is obtained or not. Similarly, in case of validity the study has evaluated the
appropriateness of the methods to develop the findings and results. This had ensured that the data
collected is authentic and the results are accurate.
3.7 Ethical consideration
The Data Protection Act of 1998, has been maintained so that no data has been
revealed. The secondary data has been collected from reliable and relevant sources consisting of
World Bank data and peer reviewed journals and articles. Falsification, fabrication and
plagiarism are the three cardinal sins of conducting research. In this study, it has been made sure
that none of the data has been omitted or changed to obtain a desired result in the research.
Moreover, none of the research instruments have been manipulated to distort the collected data.
The study has not included any false data and no claims have been made based on incomplete
data sets. None of the content used in the research is plagiarized and all the works of different
authors have been cited and have been credited for.
Chapter 4. Analysis and Discussion
4.1 Secondary data Set
The data has been collected from World Bank authentic websites which consists
of inflation rate of 130 countries along with their gross domestic product from the year of 1990
to 2017. The data below shows the descriptive statistics of all the chosen countries which
consists of the inflation rate and gross domestic product. The maximum and minimum value in
the past two decades along with the mean and the standard deviation has been calculated. The

upper of the data represents the inflation rate and the lower half of the data represents the gross
domestic product of all the randomly selected countries.
Referring to the table in the appendices section (Appendix 1), it shows the maximum,
mean and standard deviation of inflation rate and gross domestic product of majority of the
countries all over the world. It shows how the values differ depending upon the banking system
in each country and independence of the central bank.
4.2 Correlation
Correlation between GDP and Inflation in respect to CBI reforms in different
countries
The correlation between the inflation rate in the past two decades and the gross
domestic product has been calculated. The nature and degree of association between both the
variables in different countries will identify whether inflation rate vary in different countries
based on other factors such as government policies, political stability and economic condition of
that particular country. The countries that are developed and still developing are mostly affected
by the central bank’s independence. The third world nations mostly in Africa lack political
stability and do not have enough power. The politicians use the rise in inflation rate in such
countries to pursue their own interest and gain personal benefit from it.
Albania
Correlations
Albania Albania
Albania Pearson Correlation 1 -.405*
Sig. (2-tailed) .036
N 27 27
Albania Pearson Correlation -.405* 1
Sig. (2-tailed) .036
N 27 27

*. Correlation is significant at the 0.05 level (2-tailed).
Non parametric correlation
Correlations
Alb
ania
Alb
ania
Spearman's
rho
Al
bania
Correlation
Coefficient
1.00
0
-.28
3
Sig. (2-tailed) . .152
N 27 27
Al
bania
Correlation
Coefficient
-.28
3
1.00
0
Sig. (2-tailed) .152 .
N 27 27
In the case of Albania, it can be seen that the result is significant and central bank
reforms have affected the inflation and gross domestic product. This can be understood by the
correlation calculated between inflation rate and gross domestic product in the past 17 years.
Argentina
Correlations
Argentina Argentina
Argentin Pearson Correlation 1 -.258

a
Sig. (2-tailed) .194
N 27 27
Argentin
a
Pearson Correlation -.258 1
Sig. (2-tailed) .194
N 27 27
Non parametric correlation
Correlations
Arge
ntina
Arge
ntina
Spearman's
rho
Arge
ntina
Correlation
Coefficient
1.00
0
-.466
*
Sig. (2-tailed) . .014
N 27 27
Arge
ntina
Correlation
Coefficient
-.466
*
1.00
0
Sig. (2-tailed) .014 .
N 27 27

*. Correlation is significant at the 0.05 level (2-tailed).
In case of Argentina, even though the values between inflation rate and gross
domestic product is negative, the result is not significant as the significant at less than 0.05 in
case of the Pearson’s correlation. However, the value in significant in case of the spearman
correlation which is the non-parametric form of correlation.
Australia
Correlations
Australia Australia
Australia Pearson Correlation 1 -.180
Sig. (2-tailed) .369
N 27 27
Australia Pearson Correlation -.180 1
Sig. (2-tailed) .369
N 27 27
Non parametric correlation
Correlations
Aust
ralia
Aust
ralia
Spearman's
rho
Aust
ralia
Correlation
Coefficient
1.00
0
-.15
5
Sig. (2-tailed) . .440

N 27 27
Aust
ralia
Correlation
Coefficient
-.15
5
1.00
0
Sig. (2-tailed) .440 .
N 27 27
In the case of Australia, the value is not at all significant in both Pearson’s and
Spearman’s correlation. This shows that Central bank reforms did not have any impact on
inflation in Australia and also did not have any effect on the gross domestic product of the
country.
Bahrain
Correlations
Bahrain Bahrain
Bahrain Pearson Correlation 1 .541**
Sig. (2-tailed) .004
N 27 27
Bahrain Pearson Correlation .541** 1
Sig. (2-tailed) .004
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).
Non parametric correlation

Correlations
Bahr
ain
Bahr
ain
Spearman's
rho
Ba
hrain
Correlation
Coefficient
1.00
0
.484
*
Sig. (2-tailed) . .011
N 27 27
Ba
hrain
Correlation
Coefficient
.484
*
1.00
0
Sig. (2-tailed) .011 .
N 27 27
*. Correlation is significant at the 0.05 level (2-tailed).
In case of Bahrain, it can be seen that there is a negative relationship between
gross domestic product and inflation rate. Moreover, the correlation value in significant in both
instances (Pearson’s and Spearman’s). This indicates that countries that are still developing tend
to be more impacted by the central bank reforms after the independence.
Canada
Correlations
Canada Canada
Canada Pearson Correlation 1 -.278

Sig. (2-tailed) .160
N 27 27
Canada Pearson Correlation -.278 1
Sig. (2-tailed) .160
N 27 27
Non parametric correlation
Correlations
Can
ada
Can
ada
Spearman's
rho
Ca
nada
Correlation
Coefficient
1.00
0
-.18
6
Sig. (2-tailed) . .354
N 27 27
Ca
nada
Correlation
Coefficient
-.18
6
1.00
0
Sig. (2-tailed) .354 .
N 27 27
Canada is also not significantly affected due to the change in the central bank
reforms. Even though, the value is negative, the relationship between inflation rate and gross
domestic product is not significant as the value is greater than the given significance level of
0.05.

Central African Republic
Correlations
Central
African Republic
Central
African Republic
Central African
Republic
Pearson
Correlation
1 .026
Sig. (2-tailed) .897
N 27 27
Central African
Republic
Pearson
Correlation
.026 1
Sig. (2-tailed) .897
N 27 27
Non parametric
Correlations
Cent
ral African
Republic
Cent
ral African
Republic
Spear
man's rho
Central
African Republic
Correlation
Coefficient
1.00
0
.062
Sig. (2-
tailed)
. .758
N 27 27

Central
African Republic
Correlation
Coefficient
.062 1.00
0
Sig. (2-
tailed)
.758 .
N 27 27
In the case of Central African Republic it can be seen that the relationship is
positive and the value is not at all significant in any of the cases. This is because of the fact this
se country has not effectively implemented the central bank reforms.
Central Europe and Baltics
Correlations
Central
Europe and the
Baltics
Central
Europe and the
Baltics
Central Europe and
the Baltics
Pearson
Correlation
1 -.417*
Sig. (2-tailed) .030
N 27 27
Central Europe and
the Baltics
Pearson
Correlation
-.417* 1
Sig. (2-tailed) .030
N 27 27
*. Correlation is significant at the 0.05 level (2-tailed).
Non parametric

Correlations
Cent
ral Europe
and the
Baltics
Cent
ral Europe
and the
Baltics
Spear
man's rho
Central Europe
and the Baltics
Correlation
Coefficient
1.00
0
-.442
*
Sig. (2-
tailed)
. .021
N 27 27
Central Europe
and the Baltics
Correlation
Coefficient
-.442
*
1.00
0
Sig. (2-
tailed)
.021 .
N 27 27
*. Correlation is significant at the 0.05 level (2-tailed).
The central Europe and Baltics are also affected by the central bank reforms
where it can be seen than inflation is affected by the central bank independence and reforms. The
correlation is negative and the value is significant at confidence level of 0.05.
Cote d'Ivoire
Correlations
Cote
d'Ivoire
Cote
d'Ivoire

Cote
d'Ivoire
Pearson Correlation 1 -.346
Sig. (2-tailed) .077
N 27 27
Cote
d'Ivoire
Pearson Correlation -.346 1
Sig. (2-tailed) .077
N 27 27
Non parametric
Correlations
Cote
d'Ivoire
Cote
d'Ivoire
Spearman'
s rho
Cote
d'Ivoire
Correlation
Coefficient
1.000 -.378
Sig. (2-tailed) . .052
N 27 27
Cote
d'Ivoire
Correlation
Coefficient
-.378 1.000
Sig. (2-tailed) .052 .
N 27 27
In case of Cote d'Ivoire the value is not significant and lie just outside the
confidence interval of 0.05. However, this shows that there may not be proper implementation of
the central banks reforms in Cote d'Ivoire.

European Union
Correlations
European
Union
European
Union
European
Union
Pearson
Correlation
1 -.601**
Sig. (2-tailed) .001
N 27 27
European
Union
Pearson
Correlation
-.601** 1
Sig. (2-tailed) .001
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).
Non parametric
Correlations
Europe
an Union
Europe
an Union
Spearma
n's rho
Europea
n Union
Correlation
Coefficient
1.000 -.573**
Sig. (2-tailed) . .002
N 27 27

Europea
n Union
Correlation
Coefficient
-.573** 1.000
Sig. (2-tailed) .002 .
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).
In the case of European Union, it has been seen that there is significant impact of
the central bank reforms on inflation. The relationship between inflation and gross domestic
product is negative which is quite natural for countries implementing central bank
reforms.Central banks reforms have been adapted by majority of the companies to reduce the
inflation rate and control the price changes and Eu is no exception. Moreover, the inflation rate
for the EU has decreased significantly due to new central bank reforms which is denoted by the
negative relationship between the variables.
Germany
Correlations
Germany Germany
Germany Pearson Correlation 1 -.074
Sig. (2-tailed) .713
N 27 27
Germany Pearson Correlation -.074 1
Sig. (2-tailed) .713
N 27 27

Non parametric
Correlations
Ger
many
Ger
many
Spearman's
rho
Ger
many
Correlation
Coefficient
1.00
0
.082
Sig. (2-tailed) . .685
N 27 27
Ger
many
Correlation
Coefficient
.082 1.00
0
Sig. (2-tailed) .685 .
N 27 27
In the case of Germany, it has been seen that there is no significant impact of the central
bank reforms on inflation. The relationship between inflation and gross domestic product is
negative but Germany may not have implemented the central bank reforms effectively.
India
Correlations
India India
India Pearson Correlation 1 -.032
Sig. (2-tailed) .873
N 27 27
India Pearson Correlation -.032 1

Sig. (2-tailed) .873
N 27 27
Non parametric
Correlations
India India
Spearman's
rho
I
ndia
Correlation
Coefficient
1.00
0
-.201
Sig. (2-tailed) . .315
N 27 27
I
ndia
Correlation
Coefficient
-.201 1.00
0
Sig. (2-tailed) .315 .
N 27 27
The results shows that India has not implemented the central bank reforms which
is reflected in the significance level which is greater than 0.05. Indian banking has been slow in
adopting to the central banking reforms as it is still a developing country having high level of
inflation and unemployment.
Israel
Correlations

Israel Israel
Israel Pearson Correlation 1 -.700**
Sig. (2-tailed) .000
N 27 27
Israel Pearson Correlation -.700** 1
Sig. (2-tailed) .000
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).
Non parametric
Correlations
Israe
l
Israe
l
Spearman's
rho
I
srael
Correlation
Coefficient
1.00
0
-.800
**
Sig. (2-tailed) . .000
N 27 27
I
srael
Correlation
Coefficient
-.800
**
1.00
0
Sig. (2-tailed) .000 .
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).

The results reflect that the banks in Israel have implemented the central bank
reforms which is shown from the significance level in both instances. There is negative
correlation between inflation and gross domestic product which should be the case as with
increase in the inflation rate there is significant decrease in purchasing power of the population
which in turn affects the economy and gross domestic product.
Zimbabwe
Correlations
Zimbabwe Zimbabwe
Zimbabwe Pearson Correlation 1 -.203
Sig. (2-tailed) .310
N 27 27
Zimbabwe Pearson Correlation -.203 1
Sig. (2-tailed) .310
N 27 27
Non parametric
Correlations
Zimb
abwe
Zimb
abwe

Spearman's
rho
Zimb
abwe
Correlation
Coefficient
1.000 -.785
**
Sig. (2-tailed) . .000
N 27 27
Zimb
abwe
Correlation
Coefficient
-.785
**
1.000
Sig. (2-tailed) .000 .
N 27 27
**. Correlation is significant at the 0.01 level (2-tailed).
Zimbabwe is still going through financial crisis and has implemented the central
bank reforms. The value is insignificant in case of the Pearson’s correlation but the value is
highly significant in case of the non-parametric correlation. This shows that Zimbabwe has been
affected by the changes in the central bank reforms and there is significant impact on the
inflation rate.
All correlation values between inflation rate and gross domestic product in 130
countries (refer to appendix)
There are values that are positive but the majority of the values are negative. The
negative relationship between the values shows the influence of central banking reforms on the
different banks in different countries. However, the positive value shows that there are countries
that have high GDP and high Inflation rate due to their extensive budget spending and fiscal
deficit in budget. Moreover, these countries have not executed the real central bank reform which
is reflected in the monetary policies of the respective countries where one country does not focus
on the stability in the price of the products and there are other countries which focus on the
stability in the price of the product. This is the basic difference between the European countries
and the North American countries. The differences in value are due to the differences in

geographic location, monetary policies and the government’s role in central bank independence
and implementation of these reforms.
4.3 Regression analysis
The linear regression model in the given study is INF= α + βgdp + β1Dcbi. This
linear equation has been used to identify the impact on the inflation due to the independence of
the central bank. The GDP has been taken as the independent variable for analysing the impact
on the inflation rate after the central bank independence. In an ideal scenario the econometric
model should be like INF= α1 + β1gdp + β2unemp + β3Dcbi + β4year + εi. In this scenario,
unemployment, year and Central bank independence (CBI) (dummy variable) has been included
to evaluate the impact on inflation rate in different countries. However, the data of
unemployment in 130 countries is not available and year shows the time trend in that particular
period which is also unavailable. Therefore, the model has been simplified to develop relevant
findings in the study. The variable Dcbi is a dummy variable for addressing the CBI reforms
which is otherwise taken as zero. The simplified equation is used to check the relationship
between inflation and gross domestic product after the central bank independence. The result
from the above model has shown that the model is a perfect fit. This can also be understood by
linear graph that has been generated from the automated linear modelling. The regression model
will tested using the given data and the study shows that the developing countries are more
significantly affected by the central bank independence reforms than the developed countries.
The developed countries have their own policies of dealing with the stability in prices and
reducing the inflation rate.
Albania
Model Summaryb
M R R A S Change Statistics D

odel Squar
e
djusted
R
Square
td. Error
of the
Estimat
e
urbin-
Watson
R
Squar
e
Chang
e
F
Chang
e
d
f1
d
f2
S
ig. F
Chang
e
1 .
405a
.
164
.
131
4
2.188
.
164
4
.913
1 2
5
.
036
1
.673
a. Predictors: (Constant), Albania
b. Dependent Variable: Albania
ANOVAa
Model Sum of
Squares
df Mean
Square
F Si
g.
1 Regr
ession
8745.32
7
1 8745.3
27
4.
913
.0
36b
Resid
ual
44496.6
73
25 1779.8
67
Total 53242.0
00
26
a. Dependent Variable: Albania
b. Predictors: (Constant), Albania
Coefficientsa
Model Unstandardized
Coefficients
Standar
dized
t Si

Coefficients g.
B Std.
Error
Beta
1 (Co
nstant)
44.02
4
14.77
3
2.
980
.0
06
Alb
ania
-
3.976E-009
.000 -.405 -
2.217
.0
36
a. Dependent Variable: Albania
Residuals Statisticsa
Mi
nimum
Ma
ximum
M
ean
Std.
Deviation
N
Predicted
Value
-
8.58
41.
20
16.
67
18.340 27
Residual -
39.495
184
.797
.00
0
41.369 27
Std. Predicted
Value
-
1.376
1.3
38
.00
0
1.000 27
Std. Residual -.9
36
4.3
80
.00
0
.981 27
a. Dependent Variable: Albania
Argentina
Model Summaryb

M
odel
R R
Squar
e
A
djusted
R
Square
S
td. Error
of the
Estimat
e
Change Statistics D
urbin-
Watson
R
Squar
e
Chang
e
F
Chang
e
d
f1
d
f2
S
ig. F
Chang
e
1 .
258a
.
067
.
029
4
37.442
.
067
1
.784
1 2
5
.
194
.
.936
a. Predictors: (Constant), Argentina
b. Dependent Variable: Argentina
ANOVAa
Model Sum of
Squares
df Mean
Square
F Si
g.
1 Regr
ession
341313.
190
1 34131
3.190
1.
784
.1
94b
Resid
ual
478387
7.328
25 19135
5.093
Total 512519
0.519
26
a. Dependent Variable: Argentina
b. Predictors: (Constant), Argentina
Coefficientsa

Model Unstandardized
Coefficients
Stand
ardized
Coefficients
t S
ig.
Collinearity
Statistics
B Std.
Error
Beta T
olerance
V
IF
1 (C
onstant)
347.
869
204.
882
1
.698
.
102
Ar
gentina
-
7.884E-010
.000 -.258 -
1.336
.
194
1.
000
1
.000
a. Dependent Variable: Argentina
Australia
Model Summaryb
M
odel
R R
Squar
e
A
djusted
R
Square
S
td. Error
of the
Estimat
e
Change Statistics D
urbin-
Watson
R
Squar
e
Chang
e
F
Chang
e
d
f1
d
f2
S
ig. F
Chang
e
1 .
180a
.
032
-
.006
1
.450
.
032
.
836
1 2
5
.
369
1
.385
a. Predictors: (Constant), Australia
b. Dependent Variable: Australia

ANOVAa
Model Sum of
Squares
df Mean
Square
F Si
g.
1 Regr
ession
1.757 1 1.757 .8
36
.3
69b
Resid
ual
52.539 25 2.102
Total 54.296 26
a. Dependent Variable: Australia
b. Predictors: (Constant), Australia
4.4 Discussion
There is ambiguity in relationship between inflation and GDP, the analysis of the data
shows that consumer price index in China increased significantly with the growth of the
economy. On the contrary, in some underdeveloped countries there has been sharp increment in
the inflation rate even though the GDP was growing. However, as per the collected data, it can
be seen that the Latin American and the African had the lowest GDP which means that there
would be negative relationship between unemployment and inflation. National debt and inflation
should share a positive relationship in ideal situations and most of the cases it has been seen
there is positive relationship. When the central bank reduces the inflation rate before the fall of
the expected inflation rate, then there is a downward movement in the economy. The transition
from the higher rate of inflation to the lower rate of inflation will result in the decrease of the
unemployment rate directly. A recession is generated if the central increases the interest rate and
slows the speed of monetary expansion and does not take any steps to reduce the inflation rate of
the country. CBI reforms had significant impact on reducing the inflation rate in Asia, South
America and Europe. Central bank reforms have been highly effective in the Asian countries
which is portrayed from the fast paced growth of the GDP in the past decade and the data

suggests the same thing. On the contrary, the African countries have been experiencing high
inflation due to the lack of growth in the economy. Therefore, in Africa, the central bank reforms
have not been able to contribute significantly till now and only a few countries like South Africa
has been using inflation targeting to obtain relatively stable prices. In African countries, the
effect of inflation on these countries varies and are minimal in most cases. This is because of the
fact that the majority of the countries are underdeveloped and politically unstable and famine,
draught and war has heavily impacted the countries. Therefore, the majority of these countries
are not even ready for the implementation of these reforms. The government in most of these
countries are not active and are least bothered to put these reforms into place as they are more
engrossed in their own personal interest. The infrastructure in Africa is not resourced effectively
which is reason that there is lack of real-CBI reforms in the country.
In Northern America, the impact of the CBI reforms has been negligible due to the lack
of incorporation of these policies. The banks in Northern America are operationally independent
so implementation of CBI reforms is redundant for them. The majority of the countries in the
North American continent are developed countries. However, this does not mean that they will
not have high inflation rate; countries like the United States have inflation rate due to their
budget deficit as they have huge budget expenditure. Moreover, they are not eager about
implementing the central bank independence reforms. The impact of the central bank reforms in
North America is less insignificant as they have the largest independent central banking system
and have their own policies to stabilize the price. These countries have highly stable economy
and sometime growth in the inflation rate is essential for the growth of the economy especially in
developed countries.
4.5Summary
This chapter has calculated the descriptive statistics, correlation between the
variables, developed an econometric model and conducted regression analysis to establish the
relationship. These statistical analyseshave provided valuable insights on the impact of the
central banks independence on the inflation rate of different countries. The results are different
for developing countries and the developed countries. The values have been able to draw a clear
distinction between the results among different countries. The results suggest that developing
countries have felt more impact as due to the need to control the inflation rate than the developed

countries. However, the developed countries use these reforms to increase their inflation rate so
that increase the slow growth of the economy due to the saturation in the market economy.
5. Conclusion and Recommendation
5.1 Conclusion
The conclusion chapter summarizes the findings of the study and links the results with
the aim/objectives of the study. The study investigates the effect of central bank independence on
the inflation rate in different countries. The relationship between central bank independence in
each country is different due to their monetary policy and economic conditions of each country.
In ideal situations, it is expected that there will be negative relationship between central bank
independence reforms and inflation rate. The developed countries have different forms of
banking systems and they are less bothered about stabilizing the prices of the products as the
disposable income of the general population in such countries are higher than the average
population in countries which are growing.
Objective 1: To evaluate the impacts of central bank independence reforms on inflation
in distinct areas of the world
The different parts of the world have different effects of implementing central bank
independence reforms. Different countries have diverse culture, policy making, economic growth
and national situation as they exist in different continents. Therefore, it is more likely that they
will facing different situations while dealing with central bank independence reforms and
inflation rate. The study has evaluated 130 countries that belong to different continents in respect
to their gross domestic product, inflation rate and central bank independence reforms. The
findings have revealed distinct patterns in the behavior in different continents and country types.
In African countries, the effect of inflation on these countries varies and are minimal in
most cases. This is because of the fact that the majority of the countries are underdeveloped and
politically unstable and famine, draught and war has heavily impacted the countries. Therefore,
the majority of these countries are not even ready for the implementation of these reforms. The
government in most of these countries are not active and are least bothered to put these reforms
into place as they are more engrossed in their own personal interest. The scenario in the Asian
countries is quite different as the majority of them are growing at a faster rate and the countries

having political instability can bring down the inflation rate by applying central bank
independence reforms. The effect of central bank independence reforms in the Asian countries is
high but there are certain countries that have a political stability like China, Singapore, Japan and
India which are less impacted due to the central bank independence reforms. The scenario is
certainly different due to the cultural and behavioral context in Europe where the most of the
countries belong to the category of being developed. The African countries have been
experiencing high inflation due to the lack of growth in the economy. Therefore, in Africa, the
central bank reforms have not been able to contribute significantly till now and only a few
countries like South Africa has been using inflation targeting to obtain relatively stable prices. In
African countries, the effect of inflation on these countries varies and are minimal in most cases.
This is because of the fact that the majority of the countries are underdeveloped and politically
unstable and famine, draught and war has heavily impacted the countries. Therefore, the majority
of these countries are not even ready for the implementation of these reforms. The government in
most of these countries are not active and are least bothered to put these reforms into place as
they are more engrossed in their own personal interest. The majority of the population in the
European countries prefer stability in their society and economy. Therefore lowering of inflation
rate is one of the top criteria for such countries and they will adapt to any strategy in order to
achieve this goal. The European Union and member countries have developed macroeconomics
policies that has to be followed by the present members. Central bank independence reforms
have proven to be instrumental for managing the inflation rate for the countries in the EU, and
the rise in inflation in the United Kingdom, after their decision of exiting the alliance also
reflects upon the fact that the country has been losing their stability as they are adapting to new
strategies and policies.
The majority of the countries in the North American continent are developed countries.
However, this does not mean that they will not have high inflation rate; countries like the United
States have inflation rate due to their budget deficit as they have huge budget expenditure.
Moreover, they are not eager about implementing the central bank independence reforms. The
impact of the central bank reforms in North America is less insignificant as they have the largest
independent central banking system and have their own policies to stabilize the price. The
countries in the South America are still developing and the scenario is quite similar to the
countries in Asia. There is political instability but the government have been instrumental in

implementing central bank independence reforms which has reduced the inflation rate in most of
the countries and the results show that there is a negative relationship between central bank
independence reforms and inflation rate. The central bank independence reforms have been
significant and negative in Latin countries as can be been seen from the data in the past decade.
The countries in the Oceania region are developed countries and have a dominant white
population having a similar mentality as that of the Europeans. The impact of the central bank
independence reforms is significant in New Zealand as the central bank in New Zealand was the
first bank to become independent. On the other hand, Australia being a well-developed country
does not depend on central bank independence reforms to stabilize the prices of the products.
Objective 2: To evaluate the relationship among the distinct governments as well as the
central banks
The relationship between the government and the central bank vary in different countries
due to the present scenario of the economy in the each of the respective countries. The study
shows different governments have different relationship with their central banks. In developing
countries, the government supports the central bank in developing policies for controlling the
inflation rate. This is due the fact that the disposable income in the developing countries are low
so price stability is necessary. However, in developed countries they have different methods of
stabilizing the prices of the products and have reasons of having a high inflation rate. The
scenario of the underdeveloped countries are totally different as political instability and major
issues such as war causes the lack in development of reforms for stabilizing the economy.
5.2 Limitation of the study
The major limitation of the research is that it is completely based on secondary
data available on World Bank websites. The scope of the research is quite vast and results can be
more significant if the topic is narrowed to focus on particular countries which will provide in
depth analysis of the chosen nations. Moreover, the study lacks primary data analysis which
would provide a comparison between the primary and secondary data and validate the results.
5.3 Recommendations
Objective 3: To analyze the benefits of implementing central bank independence
reforms to deal with the concern of time inconsistency

Countries face high inflation rate when they implement economic expansion
policies and if the central bank is not independent the impact is high. High inflation rate results
in currency depreciation which increases the overall cost of investment. Therefore, in order to
compensate for the high rate of inflation, individuals aim to take more loans in order to fulfill
their purchase. However, this behavior further escalates the inflation rise in such situations. The
countries and economies that are still developing the implementation of central bank
independence is significant. In majority of the cases, the focus of the government is on
economic growth and unemployment than on the central bank that is independent in nature. The
independent central bank can develop monetary policies to regulate the amount of money
supplied based on the demand in the market which provides them the opportunity to act freely.
The real value of the domestic currency can also be stabilized by the central bank after the
independence effectively. The central bank after CBI reforms will have a better opportunity of
controlling the monetary policies and avoid errors made by the policy makers. The fluctuations
in the economy can be prevented by using the central bank independence reforms. The influence
of the government or the politics will be less on the central bank that have become independent
and the bank can develop policies without any biases and better manage the fluctuations in the
market. The significant issues of budget deficit monetization can be reduced by using the central
bank independence reforms. Fiscal policy has a close degree of association with the monetary
policy when there is no independence in central banks. The political pressure in countries will
result in budget deficit monetization which will result in the increase in the inflation rate.
However, independence in central banks means that they can act independently without any
political pressure. This will ensure consistency in policy making and stability in prices and
reduction in inflation. The developing countries and underdeveloped countries should aim of
developing central bank with independence for improvement of the economy and facilitate the
growth further. Globalization has increased the level of investment in all developing nations so
such reforms will help in accelerating the economy and decelerating the inflation rate
5.4 Scope of Future Research
In future, narrowing down the topic to only particular countries and conducting primary
analysis will shed more light on this topic. The primary data and secondary data can used to
conduct statistical analysis and comparison would provide the difference between the expected
and the actual data. Similarly, qualitative data analysis is another aspect of the research which

has been left out in the study. This study uses only a single research design and using a multiple
research design in the future which facilitate in developing further in-depth data.

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Appendices
Appendix 1
Descriptive Statistics
N Minimu
m
Maxim
um
Mean Std.
Deviation
Alba
nia
2
7
0 226 16.67 45.252
Alge
ria
2
7
0 32 9.41 9.893
Ang
ola
2
7
0 4145 407.52 940.782
Ara
b World
2
7
2 11 4.67 2.527
Arg
entina
2
7
-1 2314 98.41 443.985
Arm
enia
2
7
-1 3373 135.48 647.883
Aru
ba
2
7
-2 9 2.96 2.534
Aust
ralia
2
7
0 7 2.63 1.445
Aust
ria
2
7
1 4 2.07 .917
Azer
baijan
2
7
-11 1662 122.37 382.390

Bah
amas, The
2
7
0 7 2.22 1.649
Bahr
ain
2
7
-1 4 1.59 1.500
Ban
gladesh
2
7
2 11 6.11 2.407
Barb
ados
2
7
-1 9 3.30 2.880
Bela
rus
2
7
0 2221 191.04 480.709
Belg
ium
2
7
0 4 2.04 1.018
Beli
ze
2
7
-7 6 1.78 2.621
Beni
n
2
7
-1 39 4.07 7.726
Bhut
an
2
7
-18 16 6.30 5.876
Boli
via
2
7
1 21 7.11 4.846
Bots
wana
2
7
3 16 8.81 3.039
Braz
il
2
7
3 2948 316.70 762.307
Bru
nei
2 -2 6 1.07 1.567

Darussalam 7
Bulg
aria
2
7
-1 1058 72.59 208.877
Bur
kina Faso
2
7
-2 25 3.07 5.284
Bur
undi
2
7
-1 31 11.26 7.926
Cab
o Verde
2
7
-2 11 3.44 3.479
Cam
bodia
2
7
-1 25 3.93 5.595
Cam
eroon
2
7
-3 35 3.56 6.670
Can
ada
2
7
0 6 2.11 1.251
Cari
bbean small
states
2
7
-1 8 2.81 1.841
Cent
ral African
Republic
2
7
-3 37 5.44 9.748
Cent
ral Europe
and the
Baltics
2
7
0 151 14.85 32.733

Cha
d
2
7
-9 42 4.07 9.953
Chil
e
2
7
0 26 6.30 6.262
Chin
a
2
7
-1 24 4.26 5.828
Colo
mbia
2
7
2 30 11.44 9.129
Con
go, Dem.
Rep.
2
7
0 23773 1285.15 4587.857
Con
go, Rep.
2
7
-4 42 4.30 8.324
Cost
a Rica
2
7
0 29 11.26 6.625
Cote
d'Ivoire
2
7
-1 26 3.70 5.246
Croa
tia
2
7
-1 1500 107.96 316.379
Cyp
rus
2
7
-2 7 2.63 2.133
Cze
ch Republic
2
7
0 11 3.22 3.490
Den
mark
2
7
0 3 1.81 .786
Do 2 -1 6 1.78 1.761

minica 7
Do
minican
Republic
2
7
1 51 11.48 14.500
Earl
y-
demographi
c dividend
2
7
3 15 6.93 3.257
East
Asia &
Pacific
2
7
1 8 4.04 1.870
East
Asia &
Pacific
(excluding
high
income)
2
7
1 10 5.22 2.242
East
Asia &
Pacific
(IDA
&
IBRD
countries)
2
7
1 10 5.22 2.242
Ecu
ador
2
7
2 96 21.96 23.696
Egy
pt, Arab
2
7
2 20 9.37 4.924

Rep.
El
Salvador
2
7
-1 24 5.67 5.974
Equ
atorial
Guinea
2
7
-4 32 5.63 6.856
Esto
nia
2
7
0 90 10.00 19.201
Ethi
opia
2
7
-8 44 10.48 11.988
Euro
area
2
7
0 4 2.37 1.305
Euro
pe &
Central
Asia
2
7
0 11 3.41 2.832
Euro
pe &
Central
Asia
(excluding
high
income)
2
7
0 308 23.56 61.707
Euro
pe &
Central
Asia (IDA
&
2
7
0 137 15.15 29.629

IBRD
countries)
Euro
pean Union
2
7
0 6 2.78 1.672
Fiji 2
7
1 8 3.59 2.099
Finl
and
2
7
0 6 1.81 1.469
Fran
ce
2
7
0 3 1.67 .832
Gab
on
2
7
-12 36 2.56 8.016
Gam
bia, The
2
7
1 17 5.93 3.862
Geo
rgia
2
7
-1 163 11.67 31.284
Ger
many
2
7
0 5 1.59 1.217
Gha
na
2
7
9 59 20.44 12.065
Gree
ce
2
7
-2 20 5.48 5.860
Gre
nada
2
7
-1 8 2.26 1.893

Guat
emala
2
7
2 41 9.07 8.589
Gui
nea-Bissau
2
7
-4 70 15.44 22.225
Guy
ana
2
7
-1 12 4.07 3.594
Hait
i
2
7
0 39 15.63 9.802
Hea
vily
indebted
poor
countries
(HIPC)
2
7
4 29 7.89 5.213
Hig
h income
2
7
0 5 2.52 1.282
Hon
duras
2
7
3 34 11.67 8.218
Hon
g Kong
SAR, China
2
7
-4 11 3.37 4.422
Hun
gary
2
7
0 34 11.07 9.809
IBR
D only
2
7
3 20 7.52 4.750

Icela
nd
2
7
2 16 4.81 3.595
East
Asia &
Pacific
(excluding
high
income)
2
7
663000
601042
135093
34237576
46629120
77066.41
441795883
0575.291
East
Asia &
Pacific
(IDA
&
IBRD
countries)
2
7
661633
268657
134833
89369359
46537770
55582.41
440951976
6455.109
IDA
&
IBRD total
2
7
3 22 7.19 4.288
IDA
blend
2
7
1 12 5.15 2.727
IDA
only
2
7
3 24 7.78 4.353
IDA
total
2
7
3 22 7.19 3.893
Indi
a
2
7
4 14 7.70 3.148

Indo
nesia
2
7
4 58 9.85 10.235
Iran,
Islamic
Rep.
2
7
8 50 19.48 9.533
Irela
nd
2
7
-4 6 2.19 2.113
Israe
l
2
7
-1 19 5.19 5.519
Italy 2
7
0 6 2.67 1.641
Jam
aica
2
7
2 77 16.30 16.079
Japa
n
2
7
-1 3 .48 1.221
Jord
an
2
7
-1 16 4.04 3.985
Kaz
akhstan
2
7
0 1877 84.11 359.833
Ken
ya
2
7
2 46 12.48 9.795
Kor
ea, Rep.
2
7
1 9 3.81 2.304
Kuw
ait
2
7
-1 11 3.33 2.882
Kyr 2 0 37 8.81 10.153

gyz
Republic
7
Lao
PDR
2
7
0 125 17.63 27.744
Late
-
demographi
c dividend
2
7
1 10 4.93 2.480
Lati
n America
&
Caribbean
2
7
3 23 6.93 5.240
Lati
n America
&
Caribbean
(excluding
high
income)
2
7
3 27 8.37 6.140
Lati
n America
& the
Caribbean
(IDA
&
IBRD
countries)
2
7
3 25 7.59 5.740

Latv
ia
2
7
-1 243 18.85 49.682
Leas
t developed
countries:
UN
classificatio
n
2
7
4 25 8.41 4.593
Leso
tho
2
7
-10 34 7.33 7.671
Liby
a
2
7
-10 16 3.37 5.858
Lith
uania
2
7
-1 410 22.26 79.049
Lux
embourg
2
7
0 4 2.04 1.126
Mac
ao SAR,
China
2
7
-3 10 3.85 3.919
Mac
edonia,
FYR
2
7
-1 127 6.89 24.264
Mad
agascar
2
7
-2 49 12.19 10.292
Mal
awi
2
7
7 83 21.70 15.927
Mal 2 1 5 2.81 1.178

aysia 7
Mal
dives
2
7
-2 20 5.44 5.793
Mali 2
7
-6 23 2.81 5.616
Malt
a
2
7
0 4 2.33 1.074
Mau
ritania
2
7
0 12 5.63 2.720
Mau
ritius
2
7
1 13 5.93 2.854
Mex
ico
2
7
3 35 10.48 9.697
Mid
dle East
&
North
Africa
2
7
2 11 4.37 2.467
Mid
dle East
&
North
Africa
(excluding
high
income)
2
7
1 15 6.07 4.113
Mid 2 2 15 6.19 4.151

dle East
&
North
Africa (IDA
&
IBRD
countries)
7
Mid
dle income
2
7
3 14 7.04 3.252
Mol
dova
2
7
0 39 10.33 10.088
Mon
golia
2
7
0 268 22.59 52.407
Mor
occo
2
7
0 8 2.70 2.145
Moz
ambique
2
7
1 63 18.22 18.641
Nep
al
2
7
2 17 7.96 3.458
Neth
erlands
2
7
0 4 2.00 .877
New
Zealand
2
7
0 6 2.11 1.396
Nica
ragua
2
7
4 7485 395.00 1525.280

Nige
r
2
7
-8 36 2.89 7.787
Nige
ria
2
7
5 73 18.81 17.770
Nort
h America
2
7
0 5 2.22 1.121
Nor
way
2
7
0 4 2.07 .997
OE
CD
members
2
7
0 6 2.52 1.477
Othe
r small
states
2
7
1 9 4.22 1.987
Paki
stan
2
7
3 20 8.63 4.162
Pana
ma
2
7
0 9 2.04 2.175
Pap
ua New
Guinea
2
7
1 17 7.52 4.775
Para
guay
2
7
3 37 10.33 7.626
Peru 2
7
0 7482 301.15 1437.263

Phili
ppines
2
7
1 19 5.93 3.720
Pola
nd
2
7
-1 555 32.37 105.971
Port
ugal
2
7
-1 13 3.48 3.239
Post
-
demographi
c dividend
2
7
0 6 2.52 1.424
Pre-
demographi
c dividend
2
7
3 35 7.78 6.369
Qata
r
2
7
-5 15 3.63 4.491
Rom
ania
2
7
-2 255 49.89 76.251
Russ
ian
Federation
2
7
0 875 65.04 175.247
Rwa
nda
2
7
-2 20 6.59 5.002
Sam
oa
2
7
-3 16 4.33 4.977
Sau
di Arabia
2
7
-1 10 2.30 2.628
Sene 2 -2 32 2.63 6.307

gal 7
Serb
ia
2
7
0 96 21.11 29.634
Seyc
helles
2
7
-2 37 4.85 8.896
Sierr
a Leone
2
7
-36 111 20.26 30.257
Sing
apore
2
7
-1 7 1.81 1.777
Slov
ak Republic
2
7
-1 13 4.37 4.115
Slov
enia
2
7
-1 33 5.78 7.313
Sma
ll states
2
7
1 9 3.74 1.852
Solo
mon Islands
2
7
-1 17 8.19 4.114
Sout
h Africa
2
7
1 15 7.33 3.374
Sout
h Asia
2
7
3 12 7.22 2.708
Sout
h Asia (IDA
&
IBRD)
2
7
3 12 7.22 2.708
Spai 2 -1 7 3.00 1.981

n 7
Sri
Lanka
2
7
2 23 9.52 5.154
St.
Kitts and
Nevis
2
7
-2 9 2.70 2.415
St.
Lucia
2
7
-3 7 2.56 2.470
St.
Vincent and
the
Grenadines
2
7
-2 10 2.44 2.708
Sub-
Saharan
Africa
2
7
4 26 7.63 4.378
Sub-
Saharan
Africa
(excluding
high
income)
2
7
4 27 7.70 4.639
Sub-
Saharan
Africa (IDA
&
IBRD
countries)
2
7
4 26 7.63 4.378
Sud 2 5 133 39.41 41.964

an 7
Suri
name
2
7
-1 368 46.19 82.533
Swa
ziland
2
7
3 14 8.07 3.037
Swe
den
2
7
0 10 1.89 2.532
Swit
zerland
2
7
-1 6 1.26 1.631
Syri
an Arab
Republic
2
7
-4 37 6.48 8.523
Tan
zania
2
7
5 36 13.26 9.686
Thai
land
2
7
-1 8 3.30 2.367
Tog
o
2
7
-1 39 4.22 7.846
Ton
ga
2
7
-1 12 5.19 3.883
Trin
idad and
Tobago
2
7
3 12 6.30 2.715
Tuni
sia
2
7
2 8 4.30 1.436
Turk 2 6 106 39.37 33.496

ey 7
Turk
menistan
2
7
237928
1768
435242
10526
13468068
458.07
139201655
40.784
Uga
nda
2
7
0 52 10.00 11.398
Ukr
aine
2
7
0 4735 235.48 917.178
Unit
ed Arab
Emirates
2
7
507014
43748
403137
100068
18490641
2190.00
127306239
948.239
Unit
ed
Kingdom
2
7
106138
8722256
307435
9743898
20472605
09471.41
684106240
997.774
Upp
er middle
income
2
7
2 23 7.56 5.102
Uru
guay
2
7
4 113 23.48 29.347
Van
uatu
2
7
1 6 2.59 1.474
Ven
ezuela, RB
2
7
13 255 45.96 48.867
Viet
nam
2
7
-2 23 5.11 5.720
Yem
en, Rep.
2
7
0 55 15.59 14.545

Zam
bia
2
7
6 183 36.96 46.862
Zim
babwe
2
7
-2 24411 1003.37 4683.497
GROSS DOMESTIC PRODUCT
Alba
nia
2
7
709452
584
132282
44357
68801991
20.22
461235090
9.953
Alge
ria
2
7
417640
52458
213810
022462
10309765
6553.19
621664335
52.953
Ang
ola
2
7
443832
1017
126730
196125
43645248
475.67
442702559
78.283
Ara
b World
2
7
439642
267667
290691
8403547
13173406
73131.07
891864857
547.901
Arg
entina
2
7
977240
04252
594749
285413
31642634
6412.00
145330992
375.640
Arm
enia
2
7
120131
3201
116620
40714
53334004
98.74
410328539
6.900
Aru
ba
2
7
0 279196
0894
13575700
39.33
105156449
4.484
Aust
ralia
2
7
310838
014621
157369
6522007
73322065
3637.00
443543845
282.230
Aust
ria
2
7
166463
386663
441885
415806
29534372
9770.67
981155846
11.963
Azer
baijan
2
7
305246
7522
752442
94275
24875279
959.19
257780891
60.491
Bah 2 309200 118388 79280707 310624913

amas, The 7 0000 00000 40.74 8.572
Bahr
ain
2
7
422978
7234
333877
12766
15802382
230.07
107241748
94.631
Ban
gladesh
2
7
309574
83950
221415
162446
82002061
782.15
532108947
41.433
Barb
ados
2
7
195090
0000
466090
0000
34558293
55.59
102958260
7.835
Bela
rus
2
7
121384
86532
788138
39984
33495312
518.85
222549581
00.882
Belg
ium
2
7
206430
841502
530770
977634
35748763
9913.89
119270539
592.070
Beli
ze
2
7
413050
000
182015
8550
10459217
00.00
441951649.
734
Beni
n
2
7
159807
5932
970743
2016
47037268
68.04
271290504
3.139
Bhut
an
2
7
235239
570
221263
8830
90909425
3.07
669602692.
042
Boli
via
2
7
486758
2620
339411
26194
13967458
022.07
974137206
4.313
Bots
wana
2
7
379056
7052
162507
74267
87022010
96.44
439613725
8.756
Braz
il
2
7
400599
250000
261620
1578192
11834156
32070.33
744999445
260.137

Bru
nei
Darussalam
2
7
352055
1724
190484
95519
90500676
48.15
515542604
7.683
Bulg
aria
2
7
969741
6974
574184
14504
29915845
109.52
189720186
75.971
Bur
kina Faso
2
7
189529
0965
123773
91463
57577693
40.19
364416687
1.980
Bur
undi
2
7
784654
424
309364
7227
14776922
56.78
782047540.
097
Cab
o Verde
2
7
306891
107
186482
4081
10095030
12.52
591708783.
749
Cam
bodia
2
7
0 200167
47754
72363096
31.07
576727945
9.544
Cam
eroon
2
7
964395
3175
349429
48737
18703713
642.70
867685362
2.239
Can
ada
2
7
577170
761956
184262
8005830
10789325
61818.96
478150356
984.461
Cari
bbean small
states
2
7
173969
50399
725250
38828
44116842
974.33
203854003
61.440
Cent
ral African
Republic
2
7
851174
351
219559
9557
14077684
85.22
412823739.
491
Cent
ral Europe
and the
2
7
242844
938128
152958
3538571
80825163
3116.11
473970940
865.546

Baltics
Cha
d
2
7
117983
7955
139222
23234
56672845
95.30
458459184
5.515
Chil
e
2
7
331138
87818
278384
332694
13274606
2737.19
828535522
48.774
Chin
a
2
7
360857
912566
111909
92550230
36065735
60972.82
370346842
4772.478
Colo
mbia
2
7
402742
04595
380191
881860
16938916
2402.22
112129296
074.584
Con
go, Dem.
Rep.
2
7
471125
9427
379177
04900
15794494
063.44
105398477
15.256
Con
go, Rep.
2
7
176936
5425
144256
07180
62605001
95.15
452560101
7.633
Cost
a Rica
2
7
716899
9428
569889
89897
24378710
142.26
159847034
22.779
Cote
d'Ivoire
2
7
831355
7450
363748
49865
18332320
166.37
861924591
3.006
Croa
tia
2
7
0 704814
51449
35232559
297.85
228186422
75.757
Cyp
rus
2
7
559113
0218
278394
60964
15896940
904.00
761128028
6.325
Cze
ch Republic
2
7
296755
02270
235718
586901
12250834
2018.19
725433732
21.787

Den
mark
2
7
138247
261093
353361
056080
23878650
9758.00
792513374
02.663
Do
minica
2
7
166322
222
581484
037
35854883
9.37
127565350.
070
Do
minican
Republic
2
7
707367
4721
723429
67648
34576852
258.93
204762849
39.250
Earl
y-
demographi
c dividend
2
7
181317
8409846
105519
08247850
52734412
61527.85
317321901
1310.215
East
Asia &
Pacific
2
7
473243
0596835
225121
69652487
11756234
774964.37
593752237
8523.162
Ecu
ador
2
7
152392
78100
101726
331000
46403838
530.19
297372933
08.463
Egy
pt, Arab
Rep.
2
7
369705
55899
332927
833278
13787939
0127.59
971309709
08.462
El
Salvador
2
7
481754
2204
239122
27500
14072282
981.63
582999798
4.691
Equ
atorial
Guinea
2
7
100807
002
223896
27294
77000800
51.33
846821852
7.939
Esto
nia
2
7
0 262246
22451
12100036
906.56
943999372
2.461
Ethi 2 692795 730009 21781757 192724663

opia 7 0565 80434 559.22 14.988
Euro
area
2
7
586598
7770333
141130
93728352
95441334
03644.56
295239762
5301.730
Euro
pe &
Central
Asia
2
7
883314
0051198
236582
28163841
15337940
682677.78
564151635
8128.920
Euro
pe &
Central
Asia
(excluding
high
income)
2
7
627047
960915
431145
8738454
18532061
06224.70
129153368
7182.069
Euro
pe &
Central
Asia (IDA
&
IBRD
countries)
2
7
820213
772757
489377
8917069
21839121
71270.52
147135886
8662.151
Euro
pean Union
2
7
757300
7883965
191370
13228475
12872363
518361.04
419042361
9524.154
Fiji 2
7
133702
4782
467131
3315
26755064
81.89
105972028
5.288
Finl
and
2
7
892557
51015
283742
493042
18528111
9741.19
640305557
35.663
Fran 2 126917 291838 20013452 612911814

ce 7 9616914 2891460 89537.85 957.801
Gab
on
2
7
419081
9314
181865
15200
94104666
63.67
505406737
3.380
Gam
bia, The
2
7
317083
374
965781
078
76806551
3.93
155251471.
587
Geo
rgia
2
7
251387
0587
165093
05828
77166691
35.07
503161727
2.180
Ger
many
2
7
176496
7948917
389060
6893347
27694760
93606.11
705588076
552.929
Gha
na
2
7
498302
4408
478050
69495
18144429
518.22
149475906
62.910
Gree
ce
2
7
978910
90929
354460
802549
19785748
0616.22
774633460
07.980
Gre
nada
2
7
278098
778
105618
8593
60114616
6.00
232219566.
936
Guat
emala
2
7
765012
5217
686636
53469
29451068
223.89
178178610
35.932
Gui
nea-Bissau
2
7
206457
544
117820
4501
57188334
8.48
336593477.
565
Guy
ana
2
7
336708
419
350402
4213
13958510
93.59
103584578
9.402
Hait
i
2
7
0 877635
0790
47508600
14.63
239657928
3.132
Hea
vily
indebted
2
7
111754
764757
652175
948756
29670997
2067.96
197621396
886.461

poor
countries
(HIPC)
Hig
h income
2
7
190546
01188741
510487
43606969
35004282
340008.11
110730268
69744.707
Hon
duras
2
7
304888
1323
216439
36939
10115399
552.78
628182641
4.367
Hon
g Kong
SAR, China
2
7
769282
90842
320881
182124
19029036
9341.48
638711051
98.974
Hun
gary
2
7
0 157998
423132
86432131
048.15
453492798
66.382
IBR
D only
2
7
344504
1207921
274178
08169925
11898814
882266.11
871901734
8924.093
Icela
nd
2
7
612645
6175
213199
46740
11898281
265.48
476592149
5.899
IDA
&
IBRD total
2
7
375390
8554414
295104
52511451
12764842
754648.52
936350460
7850.438
IDA
blend
2
7
119339
525278
105527
1972788
40221071
4183.15
329180093
713.703
IDA
only
2
7
166157
092482
106027
1611688
46280412
7300.85
317635821
270.844
IDA
total
2
7
285827
310026
210188
6669975
86749262
6774.59
648964178
154.810

Indi
a
2
7
266502
281094
227422
9710530
93545878
9531.52
676232305
321.221
Indo
nesia
2
7
954455
47873
932256
495234
40273968
3032.63
309943026
155.520
Iran,
Islamic
Rep.
2
7
0 598853
401276
24306956
5704.74
180253903
199.452
Irela
nd
2
7
493646
81256
304819
018067
16226244
7555.81
883279832
64.645
Israe
l
2
7
589869
97917
317747
542489
16435751
0143.19
807829314
89.585
Italy 2
7
106144
5225791
239072
9163615
16328651
96145.78
450061719
632.003
Jam
aica
2
7
353089
2749
148001
65407
10030479
541.00
354117348
4.390
Japa
n
2
7
313281
7652848
620321
3121334
47158468
10448.74
690387273
151.111
Jord
an
2
7
416000
3917
386547
27746
16058979
819.48
115254798
25.688
Kaz
akhstan
2
7
168708
17135
236634
552078
80857258
284.63
746485017
53.212
Ken
ya
2
7
575178
9915
708752
89605
26000933
703.22
199135015
25.866
Kor
ea, Rep.
2
7
279349
355714
141480
4158515
79586722
2060.63
371665961
045.818
Kuw 2 110087 174161 74715528 547551733

ait 7 93176 142454 108.93 85.324
Kyr
gyz
Republic
2
7
124906
2025
746809
6567
34396975
13.85
213072847
4.050
Lao
PDR
2
7
865559
856
158057
07154
46971392
58.67
460578880
3.627
Late
-
demographi
c dividend
2
7
202719
0670325
197000
01139782
80148954
98271.11
640124866
2713.427
Lati
n America
&
Caribbean
2
7
117048
7297728
640466
3412439
32984952
53781.89
176608512
3313.813
Lati
n America
&
Caribbean
(excluding
high
income)
2
7
933616
782796
534427
0294030
26877475
29248.67
148388141
1055.783
Lati
n America
& the
Caribbean
(IDA
&
IBRD
2
7
110086
0265739
618700
3203791
31567262
85288.67
171362409
9235.080

countries)
Latv
ia
2
7
0 355960
16664
15267414
776.48
119046815
21.267
Leas
t developed
countries:
UN
classificatio
n
2
7
133068
586802
944663
662255
40430018
3652.63
294798102
892.695
Leso
tho
2
7
596415
105
278802
2889
15044789
63.96
732174282.
917
Liby
a
2
7
204818
89764
871404
05361
41968603
503.70
188285907
53.764
Lith
uania
2
7
0 485163
71721
22671998
480.11
175277899
57.843
Lux
embourg
2
7
132292
47948
663273
44189
35800512
008.70
181722042
81.527
Mac
ao SAR,
China
2
7
322092
0085
553479
98648
18184343
452.30
166140652
98.215
Mac
edonia,
FYR
2
7
231661
8543
113622
72838
63995469
58.74
302933896
0.258
Mad
agascar
2
7
265314
1959
106735
16673
59752181
22.93
289135696
4.664

Mal
awi
2
7
118180
2596
800330
0198
37264603
26.33
201105872
6.513
Mal
aysia
2
7
440241
78343
338061
963396
15968608
9419.70
980933197
04.443
Mal
dives
2
7
215089
005
422276
7413
15286777
32.93
127504350
4.574
Mali 2
7
208184
6483
143883
60064
66751695
33.89
439503323
3.448
Malt
a
2
7
254716
3582
112795
35398
61803506
86.30
295174691
2.907
Mau
ritania
2
7
101960
0771
572422
7185
26860478
72.52
164011823
3.396
Mau
ritius
2
7
265348
0001
128034
45934
68584854
91.41
344958003
3.124
Mex
ico
2
7
262709
948091
131438
5330073
78911684
4026.59
323616225
265.002
Mid
dle East
&
North
Africa
2
7
550751
246592
357507
1654293
16933166
58820.81
111214566
2517.960
Mid
dle East
&
North
Africa
(excluding
2
7
0 172826
2060498
76963233
1029.67
555426945
668.690

high
income)
Mid
dle East
&
North
Africa (IDA
&
IBRD
countries)
2
7
0 171699
6947609
76395694
0927.33
551492085
777.827
Mid
dle income
2
7
340116
9006255
275444
54671394
11735578
564706.85
880533418
7027.738
Mol
dova
2
7
0 798534
9731
32918240
61.67
275095624
5.073
Mon
golia
2
7
768401
634
125821
22604
44264620
72.41
427925353
0.525
Mor
occo
2
7
301801
08562
109881
398475
63320283
620.04
288326576
54.081
Moz
ambique
2
7
229117
5765
169611
17243
75939755
54.22
462326597
8.761
Nep
al
2
7
340121
1581
214108
40909
97055430
82.63
638001839
1.451
Neth
erlands
2
7
314267
667675
936228
211513
60387693
1660.96
215884517
525.831
New
Zealand
2
7
416360
05955
200955
119874
10297507
0435.11
538029229
65.982
Nica 2 100945 131849 64459872 343044856

ragua 7 5484 89878 98.89 6.619
Nige
r
2
7
156320
7225
822973
2168
38444620
80.85
224816140
2.683
Nige
ria
2
7
157890
03753
568498
937588
17060446
7435.33
183767536
529.597
Nort
h America
2
7
657511
0950908
201663
05457752
12925223
910019.07
441765454
8653.840
Nor
way
2
7
119791
683308
523502
127660
28039213
3706.44
144535524
249.467
OE
CD
members
2
7
187108
94530727
494365
04050674
34199179
285263.56
106689017
49155.016
Othe
r small
states
2
7
542081
42243
447241
690846
19456914
3581.04
141972105
515.617
Paki
stan
2
7
400104
24929
278654
637738
12319881
4284.07
775001044
51.842
Pana
ma
2
7
643396
7000
578209
16600
21493811
181.48
155778243
02.124
Pap
ua New
Guinea
2
7
299951
1040
230600
47128
90861501
58.85
698502728
3.389
Para
guay
2
7
569520
1563
308811
66852
13699448
390.00
828350394
9.258
Peru 2
7
264103
86669
201217
661646
93991413
979.33
602585873
16.010

Phili
ppines
2
7
443115
93756
304889
079565
13387702
8360.26
851086640
20.802
Pola
nd
2
7
659777
49037
545179
584720
29155204
0923.74
170063564
944.741
Port
ugal
2
7
787216
07509
262007
590450
16738869
5482.96
587591806
48.701
Post
-
demographi
c dividend
2
7
183607
85582385
467897
20187110
32741588
648788.67
990137243
6844.555
Pre-
demographi
c dividend
2
7
128009
178716
150351
4664919
55088623
5011.19
475955270
207.172
Qata
r
2
7
688351
6484
206224
725275
66572773
677.22
706216725
26.634
Rom
ania
2
7
251216
66667
213605
065703
98653368
883.37
706503042
33.271
Russ
ian
Federation
2
7
195905
767669
229712
8039058
91314615
5366.89
678358208
761.588
Rwa
nda
2
7
753636
370
847568
1533
36456784
32.74
253629700
9.327
Sam
oa
2
7
125597
205
804808
526
43428721
8.26
243812800.
742
Sau
di Arabia
2
7
117630
271802
756350
347333
34359986
9680.41
228770758
620.807
Sene 2 387719 153043 87821016 412821693

gal 7 6915 63138 16.04 4.051
Serb
ia
2
7
0 492595
26053
24459276
547.63
165081113
97.159
Seyc
helles
2
7
368584
759
142592
9444
80643826
4.93
322183254.
929
Sierr
a Leone
2
7
635874
002
501515
7816
18998155
64.93
136881450
4.176
Sing
apore
2
7
361520
27893
311539
499645
15132049
5107.52
932406595
15.790
Slov
ak Republic
2
7
126945
44693
100948
236941
55032036
660.33
330046280
46.847
Slov
enia
2
7
0 555898
49128
29578145
473.37
183605787
29.964
Sma
ll states
2
7
744500
78762
528564
730448
24378683
4699.93
163841135
814.429
Solo
mon Islands
2
7
302515
027
123269
9140
60474538
0.37
295797711.
209
Sout
h Africa
2
7
115553
279481
416878
162441
22550553
2444.67
101236027
601.167
Sout
h Asia
2
7
357724
008444
290312
4297500
11935955
33768.26
846086063
117.758
Sout
h Asia (IDA
&
IBRD)
2
7
357724
008444
290312
4297500
11935955
33768.26
846086063
117.758
Spai 2 523649 163501 97234333 391127746

n 7 481762 5380108 6496.44 023.237
Sri
Lanka
2
7
803255
1173
817883
75090
32766025
941.85
257071687
99.811
St.
Kitts and
Nevis
2
7
208740
444
909854
630
52486641
5.11
223988143.
737
St.
Lucia
2
7
483962
431
166707
8704
99068303
0.37
387249881.
172
St.
Vincent and
the
Grenadines
2
7
240365
259
765555
556
50382313
8.48
179907637.
133
Sub-
Saharan
Africa
2
7
291959
591949
178384
9360622
77843255
6521.63
540752239
445.606
Sub-
Saharan
Africa
(excluding
high
income)
2
7
291470
527348
178250
6097763
77762418
2765.78
540455472
768.058
Sub-
Saharan
Africa (IDA
&
IBRD
countries)
2
7
291959
591949
178384
9360622
77843255
6521.63
540752239
445.606
Sud 2 703421 971561 35269452 296424726

an 7 9713 19150 852.63 61.997
Suri
name
2
7
388300
000
524060
6061
21891347
17.26
174822660
2.940
Swa
ziland
2
7
111470
3088
482383
1657
26567126
36.30
129455578
1.558
Swe
den
2
7
209950
792713
578742
001488
37320078
0149.93
126028816
193.052
Swit
zerland
2
7
258066
552980
709182
559935
42977344
1396.41
166965619
467.921
Syri
an Arab
Republic
2
7
0 404050
06007
12764744
375.30
113792202
67.920
Tan
zania
2
7
425770
2197
482197
34752
19256567
831.63
151620435
85.389
Thai
land
2
7
853430
63966
420333
333333
22285298
3625.11
115261752
998.236
Tog
o
2
7
982624
325
448288
0424
23441699
71.67
112738855
2.838
Ton
ga
2
7
113563
822
472358
251
26865052
0.04
111786474.
461
Trin
idad and
Tobago
2
7
466948
8516
278702
57894
14164386
242.15
868187701
5.067
Tuni
sia
2
7
122905
68182
475879
13059
29902533
782.59
123561534
37.718
Turk 2 130690 950579 46281784 299721932

ey 7 172297 413279 9040.26 629.662
Turk
menistan
2
7
882444
8
387118
28
21385603.
74
10778134.7
20
Uga
nda
2
7
285745
7860
272918
80327
11520146
227.41
822789795
5.905
Ukr
aine
2
7
312615
27363
183310
146378
89038196
838.33
486802518
64.203
Unit
ed Arab
Emirates
2
7
0 8 2.44 1.805
Unit
ed
Kingdom
2
7
0 5 2.48 1.122
Upp
er middle
income
2
7
251972
1576783
217034
83315138
91270584
94795.85
692722943
0684.641
Uru
guay
2
7
929883
9655
575312
33351
27581246
444.81
156156652
19.254
Van
uatu
2
7
158397
403
814954
307
43274362
4.07
236889651.
378
Ven
ezuela, RB
2
7
0 482359
318768
16180128
4474.37
136952011
719.510
Viet
nam
2
7
647174
0806
205276
172135
71750064
213.74
639225178
26.058
Yem
en, Rep.
2
7
416735
6037
432285
82065
17010700
667.89
123329804
92.282

Zam
bia
2
7
318192
1788
280454
60442
10865057
501.93
889361488
7.614
Zim
babwe
2
7
441570
2800
166199
60400
87669060
37.04
374542288
1.419
Vali
d N
(listwise)
2
7
(Source: Data.worldbank.org 2018)
Appendix 2
Correlation
Albania -0.40433
-0.58895
Algeria -0.45987
-0.39658
Angola -0.36269
-0.1717
Arab World -0.24632
-0.2099
Argentina -0.25807
-0.08457
Armenia -0.38279
-0.20524

Aruba 0.267952
0.1252
Australia -0.15623
-0.20959
Austria -0.26309
-0.29273
Azerbaijan -0.26286
-0.1559
Bahamas, The -0.43263
0.539946
Bahrain 0.367745
0.412572
Bangladesh 0.267423
-0.10998
Barbados 0.171928
-0.43043
Belarus -0.27414
-0.32221
Belgium -0.25439
-0.28198
Belize -0.30652

-0.09883
Benin -0.1396
-0.11277
Bhutan -0.07146
-0.30567
Bolivia -0.28887
-0.61239
Botswana -0.66968
-0.44734
Brazil -0.18675
-0.39763
Brunei Darussalam -0.22175
-0.22453
Bulgaria -0.26098
-0.28732
Burkina Faso -0.3401
-0.21427
Burundi -0.22933
-0.35995
Cabo Verde -0.4148

0.27811
Cambodia 0.13763
-0.12343
Cameroon -0.19996
-0.25609
Canada -0.23045
-0.20571
Caribbean small states -0.41631
-0.1161
Central African Republic -0.26246
0.258458
Central Europe and the Baltics 0.032194
-0.1494
Chad -0.11829
-0.43465
Chile -0.52491
-0.25121
China -0.2585
-0.65205
Colombia -0.73771

-0.24417
Congo, Dem. Rep. -0.24608
-0.16737
Congo, Rep. -0.11846
-0.60809
Costa Rica -0.80109
-0.28198
Cote d'Ivoire -0.3447
-0.30103
Croatia -0.59285
-0.51434
Cyprus -0.23255
-0.26384
Czech Republic -0.28143
-0.32138
Denmark -0.07614
-0.29381
Dominica -0.38883
-0.47362
Dominican Republic -0.6274

-0.55939
Early-demographic dividend -0.42049
-0.45227
East Asia & Pacific -0.5689
-0.57268
East Asia & Pacific (excluding high
income)
-0.57268
-0.57268
East Asia & Pacific (IDA & IBRD
countries)
-0.60929
-0.68854
Ecuador 0.149701
0.077775
Egypt, Arab Rep. -0.60155
-0.73918
El Salvador -0.14394
-0.15759
Equatorial Guinea -0.31617
-0.40673
Estonia 0.36655

0.205874
Ethiopia -0.69332
-0.50254
Euro area -0.2653
-0.30217
Europe & Central Asia -0.28527
-0.26901
Europe & Central Asia (excluding high
income)
-0.31266
-0.31502
Europe & Central Asia (IDA & IBRD
countries)
-0.53615
-0.62145
European Union -0.01033
-0.15073
Fiji -0.30987
-0.10186
Finland -0.29361
-0.33806
France -0.02341
-0.06645

Gabon -0.06301
-0.59282
Gambia, The 0.067058
-0.24752
Georgia -0.25304
-0.10831
Germany -0.42763
-0.47931
Ghana -0.59905
-0.59038
Greece 0.230815
-0.14274
Grenada -0.56873
-0.52756
Guatemala -0.59297
-0.59143
Guinea-Bissau -0.13603
-0.19464
Guyana -0.59489
-0.69308
Haiti -0.45499

-0.39231
Heavily indebted poor countries (HIPC) -0.49563
-0.51002
High income -0.70826
-0.71786
Honduras -0.24568
-0.30992
Hong Kong SAR, China -0.81756
-0.81836
Hungary -0.66117
-0.59233
IBRD only -0.0564
0.007763