Central Bank’s Independence and Stock Prices

Abstract

Since the end of 1990s, the independence of central bank independence has been discussed. In the past, central banks tried to improve their independence to combat inflation. This independence has been evaluated relative to adequate economic policy and stable economic growth. This article examines the effect of central bank independence on stock market prices and finds evidence for a positive return in developed countries; moreover, for stock prices, economic independence of the central bank seems to be more important than political independence.