Earthquakes and Economic Outcomes: Does Central Bank Independence Matter?

Jeroen Klomp*, John Sseruyange

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

10 Citations (Scopus)

Abstract

This study explores whether the degree of central bank independence influences the economic performance in the period immediately following an earthquake. Earthquakes create a classic monetary policy challenge: how to accommodate the real shock in the short run with the objective of low inflation. The ultimate outcome of this dilemma depends for a large part on the degree of delegation of the monetary powers to an independent central bank and the inflation averseness of the central bank governors. Our main empirical findings clearly indicate that the increase in the inflation rate after an earthquake is significantly smaller when monetary policy is conducted by a more independent central bank. At the same time, countries with an independent central bank are confronted with a wider output gap after an earthquake suggesting a slower economic recovery.

Original languageEnglish
Pages (from-to)335-359
JournalOpen Economies Review
Volume32
Issue number2
Early online date25 Aug 2020
DOIs
Publication statusPublished - 2021

Keywords

  • Central Bank Independence
  • E3
  • E52
  • E58
  • Earthquakes
  • Inflation
  • Output gap
  • Q54

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