Central bank independence and disinflationary credibility: a missing link?

Granting central banks independence is widely assumed to decrease inflation by increasing the credibility of commitments to price stability. This paper analyzes public- and private-sector behavior in a sample of 17 OECD countries for evidence of variations in disinflationary credibility with monetary institutions. The paper does not find evidence that the costs of disinflation are lower in countries with independent central banks. It also finds no evidence that independence inhibits collection of seignorage revenues or electoral manipulation of policy. These results raise questions about some explanations of the negative correlation between central bank independence and inflation.