What is it about?
We provide evidence that the financial sector development is one of the most important factors in the disinflation process in transition economies. Specifically, we argue that the society's aversion to inflation, due to the financial sector development, has increased over time in these countries, leading to lower inflation.
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Why is it important?
This paper is important in showing that the link between central bank independence and inflation is endogenous. In these regards, we challenge the conventional wisdom that central bank independence itself leads to lower inflation.
Perspectives
Working on this paper has helped me to understand the two-way relationship between central bank independence and inflation. Specifically, I see the paper as important contribution to the debate on the effectiveness of central bank independence. We argue that the presumed role of central bank independence as a disinflationary device breaks down when one takes a proper account of financial sector development.
Goran Petrevski
Saints Cyril and Methodius University in Skopje
Read the Original
This page is a summary of: Reducing Inflation in Ex-Communist Economies, Problems of Post-Communism, July 2012, Taylor & Francis,
DOI: 10.2753//ppc1075-8216590404.
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