Comment on “Measuring the Independence of Central Banks and Its Effect on Policy Outcomes” by Cukierman, Webb, and Neyapti

Abstract

Cukierman, Webb, and Neyapti (1992) significantly broadened and deepened the empirical study of the link between central bank independence and inflation per- formance. They considered evidence for a group of countries much bigger than any examined previously, most of the additions being developing countries, and they-constructed a range of new indicators of independence based on central bank law, the results of a questionnaire, and the turnover rate of central bank gover- nors. In interpreting their findings, however, they appeared to add a further, new dimension to this subject but without examining the dimension's wider implica- tions. Almost as an afterthought, Cukierman, Webb, and Neyapti suggested that a country's choice of exchange rate regime might have some bearing on their results. Here I extend the analysis to show that a systematic examination of exchange rate-fixing arrangements can play a role in both accounting for the pattern of inflation rates across their sample of developing countries and sharpening the as- sociation between central bank independence and inflation performance.