Central Bank Independence Index

The legal index is a de jure measure: it codes what the central bank's statute says about appointments, policy authority, objectives, and lending limits, aggregating these into a zero-to-one score. The turnover rate of governors is a de facto measure: it counts how often governors are actually replaced, on the logic that frequent replacement signals political subordination. The authors find the legal index predicts inflation well in industrial economies, where laws bind, while the turnover measure works better in developing economies, where statutes are weakly enforced and practice diverges from the written charter.

Because a statute reduces inflation only if it is actually enforced. In advanced economies with strong rule of law, an independent charter genuinely constrains politicians from pressuring the bank to monetize deficits, so legal independence correlates with low inflation. In many developing economies the charter is a poor guide to behavior — governors are replaced when they resist, regardless of what the law promises — so legal scores carry little information and the behavioral turnover measure better captures actual autonomy and its anti-inflation effect.

The Cukierman-Webb-Neyapti index is the foundational measure, and most subsequent indices build on its four-group legal structure. Updates by Dincer and Eichengreen extend the same coding logic to far more countries and recent years, and other scholars have added dimensions for transparency and accountability. When combining sources, analysts must check that variable definitions and aggregation weights are consistent across vintages, since differences in coding can make raw values non-comparable even when they share the same conceptual framework.