Central Bank Independence And Inflation: Theory And Evidence

The central bank system has been there for about three hundred years since the first central bank -the bank of England was established in 1694.Since the replacement of gold standard money by fiat money in 20th century, inflation has haunting many country. So maintain the stability of money has become the most important function of the central bank. Firstly, this paper discuss the connotation of central bank independence. Then the author has analyze the connotation of Chinese central bank independence, try to develop the definition of Chinese central bank independence and the central bank institutional involved. The author also analyses the reason of many country increased central bank independence, and he briefly set forth Chinese central bank independence of institutional involve. Finally, the author theory and empirical study the relationship of Chinese central bank independence and inflation, the relationship of income inequality and inflation and the function of central bank independence. The conclusion is: the negative relationship between central bank independence and inflation is quiet robust. Income is an antecedent of inflation, the greater central bank independence inhibits inflation cause by income inequality. Base on the analysis above, the author put forwards some policy implications.