The Political Determinants of Central Bank Independence

Abstract

This paper examines the political determinants of central bank independence using data for 115 countries in 2003. The role of special interest groups, the extent of political dispersion, and the level electoral competitiveness are studied in relation to a de jure measure of independence. The relevance of macroeconomic controls, including capital account openness and fiscal deficits, is also addressed. The empirical analysis provides no evidence that special interest groups or ideological polarization affect the degree of independence. The results do reveal that the fractionalization of the legislature and executive competitiveness are positively associated with central bank independence.