Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences

Gabriel Mangano

Oxford Economic Papers, 1998, vol. 50, issue 3, 468-92

Abstract: This paper first scrutinizes the two indices of central bank independence (CBI) most commonly used in the empirical literature. It defines and discovers an impressive interpretation spread, a major criteria spread but a negligible weighting spread in those indices. Second, it examines the robustness of the empirical 'common knowledge' on the benefits of CBI. It finds that, when rankings produced by various CBI indices are regressed with, among others, average inflation, 87.5 percent of the regression coefficients are not statistically significant. Third, following recent theoretical developments, it suggests an alternative approach to the measurement of a central bank's operational status. Copyright 1998 by Royal Economic Society.

Date: 1998
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