Central Bank Independence in Transition Economies

Central Bank Independence… 

S&A No. 120 

19

Wyatt (1997) criticises previous works on inflation and CBI for being ad hoc and 

proposes new method of investigation based on isotonic regression. He claims that the 

regression results presented so far are sensitive to the numerical values of the indices 

and one cannot be sure if the index captures a relevant distance metric correctly. What 

really matters is the ordering of the CBI and inflation and the hypothesis about this 

ordering can be tested within the isotonic regression framework. Wyatt (1997) uses 

GMT indices of political and economic independence in his analysis. Results confirm 

the theoretical relationship for both economic and political measures of central bank 

independence.