CENTRAL BANK INDEPENDENCE AND DISINFLATIONARY CREDIBILITY - A MISSINGLINK

Granting central banks independence is widely assumed to decrease infl ation by increasing the credibility of commitments to price stability. This paper analyzes public- and private-sector behavior in a sample o f 17 OECD countries for evidence of variations in disinflationary cred ibility with monetary institutions. The paper does not find evidence t hat the costs of disinflation are lower in countries with independent central banks. It also finds no evidence that independence inhibits co llection of seignorage revenues or electoral manipulation of policy. T hese results raise questions about some explanations of the negative c orrelation between central bank independence and inflation.