Abstract:

The primary goal of a central bank is to develop and maintain an efficient monetary system whose primary goal is price and financial stability. If we look in the past, central banks’ were government tools’ and exist under the circumstances reflected by the need to deliver price stability – the public good – and being very sensitive to government demands. Nowadays it is widely recognized that central bank independence accompanied with arrangements like inflation targeting strategy have become largely accepted mechanisms to attain and maintain the price stability objective. In this paper it is presented the importance and the correlation between central bank independence and inflation targeting in four Central and Eastern European Countries (CEEC): Czech Republic, Poland, Romania and Hungary. It is important to analyze these countries because of the institutional changes that had been taken starting from 1990s, the increasing and strengthening central bank independence, central bank credibility and the adoption of the inflation targeting strategy within its particularities and different specifications related to each country. In the final section of this paper it is measured central bank independence and inflation targeting in the four CEEC using the Index for central bank independence and inflation targeting (ICBIIT) constructed by the author based on three main pillars: central bank political and legal central bank independence, central bank governance and conduct of monetary policy and central bank transparency and accountability.