The Inflation-Independence Relationship of the Central Bank : A check for the case of Bank Al-Maghrib

Abstract

Numerous studies have demonstrated the stabilizing effects of the Central Bank’s independence on the economy, especially by reducing inflation. The new status of Bank Al-Mghrib (BAM) provide more independence to the monetary authority from the executive and legislative authority. In this paper, we focus on the inflation-independence of BAM relationship. To test this relationship, we first construct BAM’s legal and reell independence indices according to Cukierman, Webb and Neyapty methodology. Then, we evaluate the inflation-independence of BAM relationship through graphic observation. Finally, we verify this relationship using statistical tests for the period 1959-2021. Our results suggest that there is a negative and positive correlation, respectively, between the legal and real independence of BAM and inflation. However, these results reveal the absence of a causal link between independence and inflation. BAM’s independence is a necessary but not sufficient condition for reducing inflation in Morocco.