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Measuring Central Bank Independence: Ordering, Ranking, or Scoring?

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  • King Banaian

    ()
    (Department of Economics, St. Cloud State University)

Abstract

After reviewing the measurement of central bank independence since the original measurement of Bade and Parkin and of Banaian, Laney and Willett, I reconsider the use of a scoring system for central banks as practiced by most modern papers. I conclude that these measures introduce errors that may generate bias in statistical estimations of relationships of central bank autonomy with inflation or growth. I propose a return to a classification system using a typology of central banks and show how central banks have evolved from less independent to more independent types. This paper is forthcoming in Banaian and Roberts, The Design and Use of Political Economy Indicators, Palgrave-Macmillan, 2008.

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File URL: http://repository.stcloudstate.edu/cgi/viewcontent.cgi?article=1001&context=econ_wps
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Bibliographic Info

Paper provided by Saint Cloud State University, Department of Economics in its series Working Papers with number 2008-3 Classification-E58.

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Date of creation: 10 Sep 2007
Date of revision: 28 Feb 2008
Handle: RePEc:scs:wpaper:0803

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Keywords: central bank independence; autonomy; inflation; measurement;

References

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  1. Bernard Laurens & Martin Sommer & Marco Arnone & Jean-François Segalotto, 2007. "Central Bank Autonomy: Lessons from Global Trends," IMF Working Papers 07/88, International Monetary Fund.
  2. Svensson, L.E.O., 1995. "Optimal Inflation Targets, 'Conservative' Central Banks, and Linear Inflation Contracts," Papers 595, Stockholm - International Economic Studies.
  3. Cukierman, A. & Webb, S., 1994. "Political Influence on the Central Bank : International Evidence," Discussion Paper 1994-100, Tilburg University, Center for Economic Research.
  4. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
  5. Alberto Alesina, 1988. "Macroeconomics and Politics," NBER Chapters, in: NBER Macroeconomics Annual 1988, Volume 3, pages 13-62 National Bureau of Economic Research, Inc.
  6. Cukierman, A. & Miller, G.P. & Neyapti, B., 2000. "Central Bank Reform, Liberalization and Inflation in Transition Economies: An International Perspective," Discussion Paper 2000-106, Tilburg University, Center for Economic Research.
  7. Bernard Laurens & Marco Arnone & Jean-François Segalotto, 2006. "The Measurement of Central Bank Autonomy: Survey of Models, Indicators, and Empirical Evidence," IMF Working Papers 06/227, International Monetary Fund.
  8. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  9. David Cobham & Stefania Cosci & Fabrizio Mattesini, 2008. "Informal central bank independence: an analysis for three European countries," CEIS Research Paper 116, Tor Vergata University, CEIS, revised 14 Jul 2008.
  10. Banaian, King & Burdekin, Richard C K & Willett, Thomas D, 1998. " Reconsidering the Principal Components of Central Bank Independence: The More the Merrier?," Public Choice, Springer, vol. 97(1-2), pages 1-12, October.
  11. Axel Dreher & Jakob de Haan & Jan-Egbert Sturm, 2006. "When Is a Central Bank Governor Fired? Evidence Based on a New Data Set," KOF Working papers 06-143, KOF Swiss Economic Institute, ETH Zurich.
  12. Forder, James, 1998. "Central Bank Independence--Conceptual Clarifications and Interim Assessment," Oxford Economic Papers, Oxford University Press, vol. 50(3), pages 307-34, July.
  13. Jean-François Segalotto & Marco Arnone & Bernard Laurens, 2006. "Measures of Central Bank Autonomy: Empirical Evidence for OECD, Developing, and Emerging Market Economies," IMF Working Papers 06/228, International Monetary Fund.
  14. Banaian, King & Luksetich, William A, 2001. "Central Bank Independence, Economic Freedom, and Inflation Rates," Economic Inquiry, Western Economic Association International, vol. 39(1), pages 149-61, January.
  15. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, vol. 93(4), pages 1173-1193, September.
  16. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
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Cited by:
  1. Grégory Levieuge & Yannick Lucotte, 2012. "A simple Empirical Measure of Central Bank's Conservatism," Working Papers halshs-00827680, HAL.

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