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Quest for the Best: How to Measure Central Bank Independence and Show its Relationship with Inflation

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Abstract
The objective of this paper is to check measures for explanatory power of central bank independence (CBI) in a series of econometric tests. Measures of central bank autonomy offer a useful expression of the extent to which a central bank is able to keep the government away from influencing a change in the inflation rate. The more a measure represents this idea, the easier one can find a relation between the CBI value and the inflation rate. Results of estimations show that proxies by Grilli et al. (1991) are strong regressors of inflation rate, contrary to those by Cukierman et al. (1992). Moreover, estimation results challenge the belief that divergences in CBI-inflation rate estimations are due to differences in institutional features across samples of countries, not to differences in legal proxies of central bank independence. Already results from a homogenous group of industrial countries indicate that some indices perform “better” than others.

Suggested Citation

  • Aleksandra A. Maslowska, 2011. "Quest for the Best: How to Measure Central Bank Independence and Show its Relationship with Inflation," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 5(2), pages 132-161, August.
    • Handle: RePEc:fau:aucocz:au2011_132
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    Cited by:

    1. Donato Masciandaro, 2016. "More than the Human Appendix: Fed Capital and Central Bank Financial Independence," BAFFI CAREFIN Working Papers 1635, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    2. Masciandaro, Donato & Romelli, Davide, 2015. "Ups and downs of central bank independence from the Great Inflation to the Great Recession: theory, institutions and empirics," Financial History Review, Cambridge University Press, vol. 22(3), pages 259-289, December.
    3. Ichiro Iwasaki & Akira Uegaki, 2017. "Central Bank Independence and Inflation in Transition Economies: A Comparative Meta-Analysis with Developed and Developing Economies," Eastern European Economics, Taylor & Francis Journals, vol. 55(3), pages 197-235, May.
    4. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    5. D. Masciandaro, 2019. "What Bird Is That? Central Banking And Monetary Policy In The Last Forty Years," BAFFI CAREFIN Working Papers 19127, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Donato Masciandaro & Davide Romelli, 2018. "To Be or not to Be a Euro Country? The Behavioural Political Economics of Currency Unions," BAFFI CAREFIN Working Papers 1883, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Stéphane Goutte & David Guerreiro & Bilel Sanhaji & Sophie Saglio & Julien Chevallier, 2019. "International Financial Markets," Post-Print halshs-02183053, HAL.

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    More about this item

    Keywords

    Central bank independence; political autonomy; economic autonomy; institution; estimation;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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