No single definition of central bank independence is right for all countries

A new international data set covering over 100 countries for the period 1990-2004 is used to investigate the relationship between central bank independence (CBI) and inflation. CBI is a combination of de jure and de facto characteristics. No single mix of characteristics uniquely defines CBI. Consequently, no single definition of CBI is 'right' for all countries. The distribution of inflation around the world is concentrated in the tails. Hence, quantile regressions are estimated to investigate the role of CBI. We do find strong evidence that several core elements of what can be defined as CBI do reduce inflation.