Independence of Central Banks in Non-democratic Regimes: Implications for Price Stability

Authors

Abeeb O. Olaniran, Centre for Econometrics & Applied Research, Ibadan, Nigeria; and Department of Economics, University of Pretoria, South Africa.Follow
Umar B. Ndako, Centre for Econometrics & Applied Research, Ibadan, NigeriaFollow

Document Type

Article in Press

Abstract

This study examines the impact of central bank independence on inflation in nondemocratic regimes, with a specific focus on the differences between Islamic and nonIslamic groups. It utilizes nonstationary

Heterogeneous panels to estimate both the longrun and short-run responses of inflation to central bank

independence. Additionally, it employs a panel smooth transition regression model to identify any potential threshold effects in this relationship. Our findings reveal an inverse relationship between central bank independence and inflation rates for both groups in the long run. Our result suggests that non-Islamic authoritarian countries may struggle more than Islamic ones to maintain price stability through interest rate channels, which could explain their increasing adoption of a zero interest rate policy. Furthermore, we find evidence of threshold effects that, if overlooked, could result in biased conclusions.

Recommended Citation

Olaniran, Abeeb O. and Ndako, Umar B. (2025) "Independence of Central Banks in Non-democratic Regimes: Implications for Price Stability," Bulletin of Monetary Economics and Banking: Vol. 28: No. 3, Article 1.
DOI: https://doi.org/10.59091/2460-9196.2571
Available at: https://bulletin.bmeb-bi.org/bmeb/vol28/iss3/1

Country

Nigeria

Affiliation

Centre for Econometrics & Applied Research, Ibadan, Nigeria; and Department of Economics, University of Pretoria, South Africa.