MEASURING CENTRAL BANK INDEPENDENCE - A TALE OF SUBJECTIVITY AND OF ITS CONSEQUENCES

The paper first scrutinises the two indices of central bank independen ce (CBI) most commonly used in the empirical literature. It defines an d discovers an impressive interpretation spread, a major criteria spre ad but a negligible weighting spread in those indices. Second, it exam ines the robustness of the empirical 'common knowledge' on the benefit s of CBI. It finds that, when rankings produced by various CBI indices are regressed with, among others, average inflation, 87.5% of the reg ression coefficients are not statistically significant. Third, followi ng recent theoretical developments, it suggests an alternative approac h to the measurement of a central bank's operational status.