Central bank independence and inflation targeting

Abstract

Monetary stability is a fundamental issue for any economy seeking sustainable growth. However, the ability of central banks to achieve this goal depends largely on their degree of institutional autonomy. To what extent does central bank independence determine the effectiveness of inflation targeting as a monetary policy framework? To answer this question, this article employs a qualitative comparative approach based on an analysis of four pioneering countries in inflation targeting, New Zealand, Canada, the United Kingdom, and Sweden, over the period 2000–2020, using the CWN independence index developed by Cukierman et al. (1992) and IMF data. The results show that countries with strong institutional independence maintain inflation consistently close to their target, while countries with less autonomy exhibit significantly more volatile inflation performance. The study also reveals that the credibility of the regime rests not only on formal independence but also on transparency and the accompanying mechanisms of democratic accountability.