Monetary institutions and inflation performance: cross-country evidence

This paper presents an empirical investigation of the effectiveness of the institutional frameworks of monetary policy in achieving and maintaining price stability. The institutional frameworks considered are central bank independence (CBI), inflation targeting (IT), currency boards (CB) and monetary unions (MU). Against the vast literature that argues for the price stabilizing effects of each of these institutions, the empirical evidence presented here suggests that countries that have adopted the IT and CB regimes have, on average, been associated with lower inflation rates than others during the past decade. This finding is robust to various control variables, while governance appears to be a substitute to formal mechanisms.