The Effects of Central Bank Independence and Inflation Targeting on Macroeconomic Performance: Evidence from Natural Experiments

of this work. An Excel spreadsheet containing the data and calculations is available on request. 1 Does a central bank that is independent of political influence deliver a better macroeconomic performance than one that implements monetary policy decisions taken by government? Does an inflation targeting agreement between central bank and government improve macroeconomic performance? And does the combination of an independent central bank and inflation targeting deliver an even better performance than either on its own? This paper addresses these questions by examining the outcomes of some natural experiments. Questions about the design of the monetary policy framework—the set of institutional arrangements under which monetary policy decisions are made and executed—have always been important but have not always, indeed not often, occupied an agenda topping position. They have taken second place to questions about the appropriate choice of policy targets and instruments and the appropriate rules or discretion considerations in their setting. Yet the institutional arrangements play a crucial role in either constraining or failing to constrain the monetary policy process; and they are central to the current monetary policy debate on how to support expansio