Political Monetary Cycles and Central Bank Independence

In this paper, the relationship between political monetary cycles and the central bank independence has been studied with using econometrics model. We also analyze the government interference effect on the political monetary cycles. In order to estimate the relationship, we use 39 countries’ data for the periods of 1983-2012. The panel data technique accompanies the random techniques and constant effects are used as the analysis method. The results indicate that in each country there is a significant and negative relationship between the central bank independence and the average inflation rate. Since the government interventions in the monetary decisions in the developed countries are less than other countries, these countries have higher positions in the ranking. Countries whose politicians have experienced a hyperinflation put the central bank under the pressure of political monetary changes in order to reduce inflation and it will lead to decrease the central bank independence what indicated above was the reason of why these countries were placed at a lower position of the ranking.