The statistical association between central bank independence and inflation

Abstract

The importance traditionally given to the direct and positive relationship between central bank autonomy and the inflation rate is negated by results of a study of two leading banking institutions. The subject banks are the Bank of Japan which is dependent on other government institutions and the Federal Reserve which is relatively independent. Regression analysis of data shows that the Japanese bank performed much better in inflation control than the latter despite the latter's freedom to set the long-run inflation rate. JEL Codes: E31, E52, E58