－201－ The Legal Central Bank Independence and Macroeconomic Performance: An Empirical Study on Eighteen Developing Countries in the 1990s

This article aims at improving the analysis of Cukierman（1992）on the role of central bank independence on economic performance of developing countries by recognizing the importance of legal enforcement of central bank law in terms of clarity of objective（s）, accountability, tranparency, coordination and contingency measures of the central bank. For this purpose, we construct a legal enforcement index. Our empirical study suggests that increasing the level of legal central bank independence is associated with the reduction in long-term average inflation rates. From short-term analysis, beyond central bank independence, legal enforcement is discovered as another significant independent factor that has implications on macroeconomic performance. In the short-term, while increasing central bank independence may cause tradeoffs on real growth and unemployment, promoting legal enforcement tends to lead only to benefits. Moreover, exchange rate regime also plays a significant role in influencing the nature of tradeoffs of central bank independence and benefits of legal enforcement on macroeconomic variables. Our main recommendation for developing countries where in the average inflation rates are not excessive is that the emphasis should be placed more on legal enforcement of central bank law than on legal central bank independence for a preferable short-term macroeconomic performance