Are there any empirical studies on the question of whether independent central banks cause price stability?

I am seeking to understand if independence (of the central monitory authority) is part of the market function that determines price stability at all, and if there are any studies conducted in this area.

The case I have seen arguing for independence leading to price control from here, in an article titled

Nobel-Winning Economist Kydland Backs RBI's Anti-Inflation Policy

In his speech, Mr Kydland observed that independence of the central bank is key to achieving the broader goals of policymaking, and interference by the executive is not desirable.

The case against (probably) from here

The 1995 Reserve Bank of Zimbabwe Act legislated a greater degree of autonomy for the central bank. After 1995 the bank had its own budget and could decide on its own finances. The act also established the control of inflation as the unique objective of monetary policy,

Clearly, increased CBI (Central Bank Independence) did little to restrain Zimbabwe’s subsequent monetary policy.

  • 4
    $\begingroup$ +1: I like that the OP included some sources "for" and "against" to give context to the question. $\endgroup$
    – jmbejara
    Dec 4, 2014 at 19:23
  • $\begingroup$ Empirical studies in Macro are always difficult: You can't randomize central bank policy. So what we have are time-series and "suggestive evidence"... $\endgroup$
    – FooBar
    Dec 5, 2014 at 12:54
  • $\begingroup$ @skv: Please stop artificial edits of few characters just to bounce your question to the top. $\endgroup$
    – FooBar
    Dec 5, 2014 at 17:35
  • $\begingroup$ Yes. See meta.stackexchange.com/questions/4397/… . Note that the community user will "bump" unanswered questions every hour anyways. $\endgroup$
    – FooBar
    Dec 5, 2014 at 17:46

1 Answer 1


Your question has been addresses in different ways. Kydland and Prescott (1977) argue that a central bank should follow defined policy rules instead of active stabilization methods because the latter contributes to economic instability. Barro and Gordon (1983) prove that under a discretionary regime, the central bank has an incentive to print money to improve the economic performance in the short run, but this doesn't happen in the long run. Walsh (1995) discuss the way central bankers incentives should be design in order for the central bank to follow a socially optimal policy.

On Central Bank Independence (CBI), Grilli, Masciandaro and Tabellini (1991) and Cukierman, Webb and Neyapti (1992) developed a methodology to assess CBI from different countries, and how the degree of independence impacts on the economic performance of this countries. Alesina and Summers (1993) studied 16 OECD countries and they compared the countries CBI score against economic performance measures (GDP growth, unemployment rate, and inflation). Then, there are several papers that cite these researches and build upon them.

The CBI scores are based on multiple criteria, Grilli et al., have a different approach than Cukierman et al. Alesina and Summers used a combination of both, so for the case of Zimbabwe you'll have to analyze if the laws of its central bank have the characteristics that the researches take into account when they build their indices.


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