Variation in central bank independence across countries: Some provisional empirical evidence

In this paper seven hypotheses to explain variation in central bank independence across countries are tested. The predictions based upon the theory that delegation of authority by politicians to the central bank is used as a commitment device are not supported: central bank independence is not higher the larger the employment motivated inflationary bias, the higher political instability or the larger the government debt. Central bank independence is positively related to historical inflation experience and negatively with political instability. We do only find limited support for the view that countries with a universal banking system and countries whose central banks do not regulate financial institutions have more independent central banks.