Abstract
In this paper seven hypotheses to explain variation in central bank independence across countries are tested. The predictions based upon the theory that delegation of authority by politicians to the central bank is used as a commitment device are not supported: central bank independence is not higher the larger the employment motivated inflationary bias, the higher political instability or the larger the government debt. Central bank independence is positively related to historical inflation experience and negatively with political instability. We do only find limited support for the view that countries with a universal banking system and countries whose central banks do not regulate financial institutions have more independent central banks.
Similar content being viewed by others
References
Alesina, A. (1988). Macroeconomic and politics.NBER Macroeconomic Annual 1988. Cambridge: Cambridge University Press.
Alesina, A. and Summers, L.H. (1993). Central bank independence and macroeconomic performance: Some comparative evidence.Journal of Money, Credit, and Banking 25: 151–162.
Bade, R. and Parkin, M. (1988). Central bank laws and monetary policy. Unpublished. University of Western Ontario.
Bofinger, P. (1992). Discussion. In M.B. Canzoneri, V. Grilli and P.R. Masson (Eds.),Establishing a central bank: Issues in Europe and lessons from the US, 77–80. Cambridge: Cambridge University Press.
Cukierman, A. (1992).Central bank strategy, credibility, and independence. Cambridge: MIT Press.
Cukierman, A. (1994). Commitment through delegation, political influence and central bank independence. In J.O. de Beaufort Wijnholds, S.C.W. Eijffinger and L.H. Hoogduin (Eds.),A framework for monetary stability. Dordrecht: Kluwer Academic Publishers.
Cukierman, A., Edwards, S. and Tabellini, G. (1992). Seigniorage and political instability.American Economic Review 82: 537–555.
Debelle, G. (1993). Central bank independence: A free lunch? Mimeo. Department of Economics, MIT. October.
Edwards, S. and Tabellini, G. (1991). Explaining fiscal policies and inflation in developing countries.Journal of International Money and Finance 10: 516–540.
Eijffinger, S. and Schaling, E. (1993). Central bank independence in twelve industrial countries.Banca Nazionale del Lavoro Quarterly Review 184: 1–41.
De Beaufort Wijnholds, J.O. and Hoogduin, L.H. (1994). Central bank autonomy: Policy issues. In J.O. de Beaufort Wijnholds, S.C.W. Eijffinger and L. Hoogduin (Eds.),A framework for monetary stability. Dordrecht: Kluwer Academic Publishers.
De Haan, J. and Sturm, J.E. (1992). The case for central bank independence.Banca Nazionale del Lavoro Quarterly Review 182: 305–327.
De Haan, J. and Sturm, J.E. (1994). Political and institutional determinants of fiscal, policy in the European Community.Public Choice 80: 157–172.
Grilli, V., Masciandaro, D. and Tabellini, G. (1991). Political and monetary institutions and public financial policies in the industrial countries.Economic Policy 13: 341–392.
Issing, O. (1993). Central bank independence and monetary stability.Occasional paper 89. Institute of Economic Affairs.
Layard, R., Nickel, S. and Jackman, R. (1991).Unemployment, macroeconomic performance and the labour market. Oxford: Oxford University Press.
Lohmann, S. (1992). Optimal commitment in monetary policy: Credibility versus flexibility.American Economic Review 82: 273–286.
Maddison, A. (1991).Dynamic forces of capitalist development. Oxford: Oxford University Press.
Neumann, M.J.M. (1991). Precommitment by central bank independence.Open Economies Review 2: 95–112.
Posen, A.S. (1993a). Why central bank independence does not cause low inflation: There is no institutional fix for politics. In R. O'Brien (Ed.),Finance and the international economy 7. Oxford: Oxford University Press.
Posen, A.S. (1993b). Central banks and politics.Amex Bank Review 20(9): 5.
Author information
Authors and Affiliations
Additional information
The authors would like to thank various participants at the Meeting of the European Public Choice Society in Valencia (April 1994) and the referee for their comments on a previous version of the paper.
Rights and permissions
About this article
Cite this article
de Haan, J., van't Hag, G.J. Variation in central bank independence across countries: Some provisional empirical evidence. Public Choice 85, 335–351 (1995). https://doi.org/10.1007/BF01048203
Accepted:
Issue Date:
DOI: https://doi.org/10.1007/BF01048203