Does Central Bank Independence Really Matter? Re-Assessing the Role of the Independence of Monetary Policymakers in Macroeconomic Outcomes

Using both standard regressions and Markov-Chain Monte-Carlo estimation methods from a Bayesian perspective and a sample of 39 countries for 1981-2006, we re-examine the role of central-bank independence (CBI) in macroeconomic outcomes. Control variables commonly used in the literature are examined together with a number of other variables to which existing studies often give little attention. Our results suggest that lower inflation should be seen as resulting from a broad-range of institutional and structural factors, with CBI failing to play the key role. We also find that central-bank independence has no favourable effect on employment growth, while it increases output volatility following supply-side shocks.