A linear approach to estimating the impact of the central bank independence on the effectiveness of monetary policy in Algeria for the period (1990–2021)

Abstract

Theoretically, delegating monetary policy to a central bank independent of political interference leads to lower inflation. In this paper, we empirically study the impact of central bank independence on the effectiveness of monetary policy (in achieving price stability) in Algeria for the period (1990–2021), using the ARDL model. Our results suggest that central bank independence and democracy have a significant negative impact on inflation. Moreover, we find that the term interaction (between CBI and democracy) has the strongest impact (negative significant) on inflation. The findings support the hypothesis that improving democracy will increase CBI degrees and boost the effectiveness of monetary policy in Algeria.