Performance of Monetary Institutions: Comparative Evidence

Abstract

This paper provides new evidence on the relative effectiveness of formal monetary institutions in achieving price stability. The institutions considered are, specifically, central bank independence (CBI), inflation targeting (IT), currency boards (CB) and monetary unions (MU). An empirical investigation is conducted to investigate their relative impacts on the average inflation performance, considering that often countries employ a combination of these institutional mechanisms. The evidence indicates that both IT and CB regimes have been associated with significantly lower rates of inflation during the past two decades, whereas CBI and MU do not appear significant in explaining low inflation rates.