Central Bank Independence and Economic Stability: An Empirical Approach with General Method of Moments

Many economists believe that central bank independence improves economic performance, although some researches have not shown clear and definiterelationship between central bank independence and economic performance. By using General Method of Moments this paper investigated the impact of central bankindependence on economic stability at the real economy in industrial countries and in developing countries during the period of 1990 2010. The results of the estimatedcoefficients is related to the index of variable independence Central Bank and show that all coefficients except the control inflation in the industrial countries have beenmeaningful and The sign expected. If the central bank undisputed our government is out of control and monetary policy will lead to economic instability. This studyexamined the effects of central bank independence on economic stability. But the central bank independence index variable shows that the coefficient of this variable isnegative and significant. It shows that other conditions being equal, countries that have higher than average degree of central bank independence encounter lessvolatility and variance in economic growth.

Keywords:

Central Bank Independency , Inflation , Economic Stability , General Method of Moments.