Quest for the best: How to measure central bank independence and show its relation with inflation?
We use several numerical tests in order to receive answers to our three questions. First, this paper aims to indicate, which measure of central bank independence explains economic changes the most accurately, and hence gives the most exact guidance onto institutional design of monetary authorities. Second, our aim is to prove that differences in legal proxies matter as much as institutional development of countries. Finally, we show that results are vulnerable to data modification. This experiment is performed by an empirical verification of the quality of CBI indices, comparing several widely used measures for around 100 countries, using a panel data approach. After a brief description of imprecision in CBI measures methodology and their definitions, a comparison using OLS method is made. Additional tests of TSLS, PCA and stepwise selection are used, as well. In the final conclusion we are able to point the ``winner'' of this experiment but also we indicate that a minor modification of data can change the result.
|Date of creation:||Sep 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Rehtorinpellonkatu 3, FIN-20500 TURKU|
Phone: +358 2 333 51
Web page: http://ace-economics.fi
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andreas Freytag & Donato Masciandaro, 2005. "Financial Supervision Fragmentation and Central Bank Independence: The Two Sides of the Same Coin?," Jenaer Schriften zur Wirtschaftswissenschaft 14/2005, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultät.
- de Haan, Jakob & Hillman, Arye L. & Ursprung, Heinrich W., 2004. "Economic research on terror," European Journal of Political Economy, Elsevier, vol. 20(2), pages 291-292, June.
- Eijffinger, S-C-W & de Haan, J, 1996.
"The Political Economy of Central-Bank Independence,"
Princeton Studies in International Economics
19, International Economics Section, Departement of Economics Princeton University,.
- Eijffinger, S. & De Hann, J., 1995. "The Political Economy of Central Bank Independence," Papers 9587, Tilburg - Center for Economic Research.
- Wojciech S. Maliszewski, 2000. "Central Bank Independence in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(3), pages 749-789, November.
- Stefan Krause & Fabio Mendez, 2005.
"Institutions, Arrangements, and Preferences for Inflation Stability: Evidence and Lessons from a Panel Data Analysis,"
0501, Department of Economics, Emory University (Atlanta).
- Krause, Stefan & Méndez, Fabio, 2008. "Institutions, arrangements and preferences for inflation stability: Evidence and lessons from a panel data analysis," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 282-307, March.
- Jan-Egbert Sturm & Jakob de Haan, 2001.
"Inflation in Developing Countries: Does Central Bank Independence Matter?,"
CESifo Working Paper Series
511, CESifo Group Munich.
- Sturm, Jan-Egbert & Haan, Jakob de, 2001. "Inflation in developing countries: does Central Bank independence matter?," CCSO Working Papers 200101, University of Groningen, CCSO Centre for Economic Research.
- Bernard Laurens & Martin Sommer & Marco Arnone & Jean-FranÃ§ois Segalotto, 2007.
"Central Bank Autonomy; Lessons from Global Trends,"
IMF Working Papers
07/88, International Monetary Fund.
- 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.
- Loungani, Prakash & Sheets, Nathan, 1997.
"Central Bank Independence, Inflation, and Growth in Transition Economies,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 29(3), pages 381-99, August.
- Prakash Loungani & Nathan Sheets, 1995. "Central bank independence, inflation and growth in transition economies," International Finance Discussion Papers 519, Board of Governors of the Federal Reserve System (U.S.).
- James Forder, 2000.
"Traps in the Measurement of Independence and Accountability of Central Banks,"
Economics Series Working Papers
23, University of Oxford, Department of Economics.
- Forder, J., 2000. "Traps in the Measurement of Independence and Accountability of Central Banks," Economics Series Working Papers 9923, University of Oxford, Department of Economics.
- Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
- Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
- 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.
- repec:dgr:rugccs:200101 is not listed on IDEAS
- Mark M. Spiegel, 1998. "Central bank independence and inflation expectations: evidence from British index-linked gilts," Economic Review, Federal Reserve Bank of San Francisco, pages 3-14.
When requesting a correction, please mention this item's handle: RePEc:tkk:dpaper:dp37. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aleksandra Maslowska)
If references are entirely missing, you can add them using this form.