Central Bank Independence in Transition Economies

2.2. CBI and Inflation Performance 

Legal and behavioural indices described in the previous section have been used 

extensively to test the relationship between CBI and inflation performance suggested 

by the theory. The relationship between CBI and real growth and its variability has 

been also investigated but since the main topic of the paper is the relation between CBI 

and inflation performance the results will not be presented here. It is worth to note, 

however, that none of the studies find convincing support for negative output _ CBI or 

positive output variance _ CBI relationship. 

Bade and Parkin (1988) find negative association between their index of political 

independence and average inflation in the sample of twelve industrial countries for 

1972-1986 period. Mean inflation delivered by two most (politically) independent 

banks (Switzerland and Germany) is significantly lower than in other countries. They 

do not find any significant relationship between inflation variability and political 

independence. The inverse relationship between the CBI index and average rate of 

inflation in 1973-86 was also found by Alesina (1988, 1989). 

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