On the Relationship between Central Bank's Independence and Inflation Rate in Iran

The purpose of present paper was to examine the relationship between central bank independence and inflation rate in Iran over 1960-2008. First, central bank independence has been accomplished through three indices including legal and real CBI indices and turnover rate of central bank governor index. Then, Augmented Dickey-Fuller test for model stationary of variables has been done by applying Eviews software. In addition, the relationship among the central bank independence indices and average inflation rate and its variability in Iran’s economy has been investigated using Eviews and Microfit softwares. Necessary data for calculating CBI index were obtained from Cukierman criteria (LCBI). Furthermore, real CBI index was gathered via standard questionnaire and turnover rate of central bank governor index data were collected through library survey. The results showed a negative relationship among real CBI and inflation and its variability. The relationship between legal CBI and inflation was also negative, but its relationship with inflation variability was not statistically significant. Also, a positive relationship between turnover rate of central bank governor index and inflation rate was observed, but negative relationship was seen between turnover rate of central bank governor index and inflation rate variability.