Political monetary cycles and a de facto ranking of central bank independence

摘要

Political monetary cycles are less likely to occur in countries with independent central banks. Independent central banks can withstand political pressure to stimulate the economy before elections or finance election-related increases in government spending. Based on this logic and supporting evidence, we construct a de facto ranking of central bank independence derived from the extent to which monetary policy varies with the electoral cycle. The ranking avoids well-known problems with existing measures of central bank independence and provides independent information about average inflation and inflation volatility differences across countries.