RECONSIDERING THE PRINCIPAL COMPONENTS OF CENTRAL BANK INDEPENDENCE -THE MORE THE MERRIER

We use principal component analysis to reassess the link between diffe rent attributes of central bank independence and inflation performance . We suggest that coding problems may account for the fact that almost none of the attributes included in the Cukierman index has a systemat ic, plausible relationship with inflation. The multi-faceted Cukierman index also seems to be out-performed by a much narrower index focusin g solely on policy independence. These findings point to the importanc e of using public choice analysis to isolate the real problem here: na mely, finding specific central bank structures that effectively insula te central bankers from political pressures.