Does an independent central bank (CBI) reduce inflation ? Despite numerous articles suggesting it does, this question has not been satisfactorily answered because the complex macroeconomic structure that gives rise to the data has not been adequately incorporated into economic analyses. We develop a causal model that summarizes the economic process of inflation and estimate the effect of CBI on inflation with modern doubly robust effect estimation techniques.We incorporate a large amount of variables in our directed acyclic graph and overcome endogeneity issues of previous studies.Our approach includes machine learning algorithms which are tailored to the question of interest and reduce the chance of model misspecification . We do not find strong support for the hypothesis that CBI causes lower inflation. If a country had legislated CBI for every year between 1998 and 2008, it would have had an average reduction in inflationof -0.63 (-2.33; 1.07) percentage points in 2010.
The notion that an independent central bank reduces a country's inflation is a controversial hypothesis. To date, it has not been possible to satisfactorily answer this question because the complex macroeconomic structure that gives rise to the data has not been adequately incorporated into statistical analyses. We develop a causal model that summarizes the economic process of inflation . Based on this causal model and recent data, we discuss and identify the assumptions under which the effect of central bank independence on inflation can be identified and estimated. Given these and alternative assumptions, we estimate this effect using modern doubly robust effect estimators, i.e., longitudinal targeted maximum likelihood estimators. The estimation procedure incorporates machine learning algorithms and is tailored to address the challenges associated with complex longitudinal macroeconomic data . We do not find strong support for the hypothesis that having an independent central bank for a long period of time necessarily lowers inflation. Simulation studies evaluate the sensitivity of the proposed methods in complex settings when certain assumptions are violated and highlight the importance of working with appropriate learning algorithms for estimation.
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Does
The notion that
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(CBI) reduce inflation ? Despite numerous articles suggesting it does, this question
reduces a country's inflation is a controversial hypothesis. To date, it
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satisfactorily answered
possible to satisfactorily answer this question
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economic
statistical
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and estimate the effect of CBI on inflation with
. Based on this causal model and recent data, we discuss and identify the assumptions under which the effect of central bank independence on inflation can be identified and estimated. Given these and alternative assumptions, we estimate this effect using
R
estimation techniques.We incorporate a large amount of variables in our directed acyclic graph and overcome endogeneity issues of previous studies.Our approach includes
estimators, i.e., longitudinal targeted maximum likelihood estimators. The estimation procedure incorporates
R
which are tailored to the question of interest and reduce the chance of model misspecification
and is tailored to address the challenges associated with complex longitudinal macroeconomic data
R
CBI causes lower inflation. If a country had legislated CBI for every year between 1998 and 2008, it would have had an average reduction in inflationof -0.63 (-2.33; 1.07) percentage points in 2010.
having an independent central bank for a long period of time necessarily lowers inflation. Simulation studies evaluate the sensitivity of the proposed methods in complex settings when certain assumptions are violated and highlight the importance of working with appropriate learning algorithms for estimation.