ABSTRACT
The paradigm of time inconsistency (Kydland and Prescott, 1977) applied to the problem of monetary policy by Barro and Gordon (1983a) established the possibility of an infl ationary bias. Devices have therefore been suggested in the literature to reduce this bias. Barro and Gordon (1983b) conclude that the best solution for the time-inconsistency problem consists of the introduction of fi xed rules in monetary policy, that is, the authorities commit themselves to certain policy rules. Following the pioneering work by Rogoff (1985), the delegation of monetary policy making powers to independent central banks has been widely believed to bring about lower infl ation. Since then, a number of studies have provided empirical support for this negative relationship between central bank independence and infl ation for various samples of developed economies (Alesina and Summers, 1993). However, empirical evidence from developing countries has been less clear-cut (Fuhrer, 1997). Furthermore, there are few studies of the independence of the central banks of Middle East and North African (MENA) countries, and especially of the independence of the Bank of Algeria.
