On the determinants of Central Bank independence in open economies

Marcello D'Amato, Barbara Pistoresi and Francesco Salsano

International Journal of Finance & Economics, 2009, vol. 14, issue 2, 107-119

Abstract: We test some positive implications of the commitment hypothesis for the design of monetary institutions in open economies, by studying the determinants of Central Bank independence on a sample of 55 countries, for the period 1980-1989. We document fairly consistent empirical evidence in support of the hypothesis that strategic commitment is indeed important to understand cross-country variation in the level of Central Bank degree of dependence. We also address the related question why only highly industrialized countries have relied on such a solution to the inflationary bias of monetary policy whereas other countries have not. Data suggest that the answer is related to the presence and the size of world-wide common features in the business cycle at country level. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2009
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DOI: 10.1002/ijfe.360

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