Central Bank Independence Index

The central bank independence index of Cukierman, Webb, and Neyapti (1992) is the foundational quantitative measure of how insulated a monetary authority is from political control. It reads the central bank's statute and codes dozens of legal provisions into four groups — the appointment, tenure, and dismissal of the chief executive; who holds authority over monetary policy formulation and conflict resolution; the bank's statutory objectives, especially the primacy of price stability; and the limits on the bank's lending to government — then scores each provision on a zero-to-one scale and aggregates them with explicit weights into a legal independence index running from zero to one. To capture the gap between law and practice, the authors complement this de jure index with a de facto measure: the turnover rate of central bank governors. The framework launched the empirical literature linking institutional design to inflation performance.