Central Bank Independence and Transparency: Evolution and Effectiveness; Christopher Crowe and Ellen E. Meade; imf working Paper 08/119; May 1, 2008

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Central Bank Independence and 
Transparency: Evolution and 
Effectiveness 
Christopher Crowe and Ellen E. Meade 
WP/08/119

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© 2008 International Monetary Fund 
WP/
08/119
 
IMF Working Paper 
Research Department
Central Bank Independence and Transparency: Evolution and Effectiveness 
Prepared by Christopher Crowe and Ellen E. Meade
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Authorized for distribution by Atish Ghosh

May
2008
Abstract
This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent 
those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are 
published to elicit comments and to further debate.
This paper examines the current level of central bank independence (CBI) and transparency 
in a broad sample of countries using newly constructed measures, and looks at the evolution 
in both measures from an earlier time period. Increases in CBI have tended to occur in more 
democratic countries and in countries with high levels of past inflation. More independent 
central banks in turn tend to be more transparent, while transparency is also positively 
correlated with measures of national institutional quality. Exploiting the time dimension of 
our data to eliminate country fixed effects and using instrumental variable estimation to 
overcome endogeneity concerns, we present evidence that greater CBI is associated with 
lower inflation. We also find that enhanced transparency practices are associated with the 
private sector making greater use of information provided by the central bank. 
JEL Classification Numbers: E42, E44, E52, E58 
Keywords: central bank independence, transparency, monetary policy 
Author
’
s E-Mail Address: [e-mail]; [e-mail] 
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The authors would like to thank participants at the conference, “Does Central Bank Independence Still Matter?” 
hosted by Bocconi University in September 2007, Jakob De Haan and an anonymous referee for useful comments. 

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Contents Page 
I. Introduction ..................................................................................................................3 
II. Measures of Central Bank Independence.....................................................................5 
III. Measures of Central Bank Transparency.....................................................................8 
IV. Effects of Central Bank Independence ......................................................................12 
V. Effects of Transparency .............................................................................................16 
VI. Conclusions.................................................................................................................19 
Text Tables: 
1. Mean Level (Later Period) and Change in CBI ...........................................................7 
2. Correlates with Change in CBI Index, D.CBI .............................................................8 
3. Mean Level (Later Period) and Change in Transparency..........................................10 
4. Correlates with Transparency Score, TRANS1 .........................................................12 
5. CBI and Inflation (INF): OLS Regression Results....................................................14 
6. D.CBI and Inlfation (D.INF) IV Regression Results.................................................15 
7. Transparency and Use of Private Information ...........................................................18 
Appendix: Data Sources and Variables Used ...................................................................21 
Table A1. Country Samples...............................................................................................23 
Table A2. Construction and Coding of Transparency Measure ........................................24 
References..........................................................................................................................25 

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