Featured Research Projects

Fiscal Policymaking and the Central Bank Institutional Constraint Una Vez Más: New Latin American Evidence

Professors Richard Burdekin (CMC) and Leroy Laney (Hawai’i Pacific University)

Abstract: The potential effects of central bank independence on government budget deficits remain surprisingly largely unexplored in the literature. This paper re-examines the relationship between central bank independence and budget deficit for a 14-country sample of Latin American countries over 1990-2012. The empirical findings offer quite strong support for the importance of the central bank institutional constraint extending beyond the industrial countries of Western Europe and North America. This suggests that greater central bank autonomy could indeed help reign in fiscal excesses in a region that has been plagued by inflationary deficit expansion for much of the post-war period.