Central Bank Independence: Does Legal Origins Matter?

Анотація

Abstract Legal Origins and Law and Finance literature, despite heavy criticism, shows vivid examples of how legal traditions affect economic and political institutions with strong consequences for financial systems. Is there a relation between Legal Origins and central bank independence (CBI)? The research idea of the paper is based on prediction that Legal Origins could related to formal status, but more likely affect factual status. From the empirical side it is found that the level of CBI varies in countries with different legal traditions. Such difference was widened during the time of CBI reforms around the globe, so Common Law countries demonstrate the lowest level of CBI among others. ANOVA and Fisher LSD test confirm the statistical significance of differences in CBI across Legal Origins. In terms of inflation performance, the situation is not the same. Common Law countries are neither the best nor worst inflation performers, saying that, lower formal CBI may coexist with a better inflation situation. Results of Correspondence Analysis confirm that all together lower levels of CBI and inflation compared to the group mean are in statistically significant ties with the Common Law proxy during the 1980-2023 and 2000-2023 period, while rule of law and sovereign wealth funds proxies are significant only during 2000-2023. From the theoretical side, it means that Legal Origin matters for CBI, especially after comprehensive reforms of monetary institutions, yet the channels of its influence on central banks should be investigated further.

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