In addition, more independent central banks (i.e., ones with a higher LVAU
) in the panel of fixed-exchangerate countries raise interest rates, whereas the same variable has no such impact in the group of floating-exchange-rate regime countries.
The comparison between the optimal degree of independence and conservativeness and the legal indices of central bank independence (AL, GMT, ES, and LVAU) can be made.
Therefore, y is a vector of observed legal indices of central bank independence (AL, GMT, ES, and LVAU), lognormalized so that the natural logarithm of their values range from 0 to 1 and measured in deviation from their means
(The recent widespread movement toward more independent central banks occurred after our sample, which ends in 1990.) For example, 96.6 percent of the country-decade variance in Cukierman's LVAU index (the only time-variant index available) is solely cross-sectional (cross-country); see Cukierman 1992.
Time-variant indexes for the coordination of wage bargaining do not exist; central bank independence has been measured by "decade" (Cukierman's LVAU is measured for 1950-59, 1960-72, 1973-79, and 1980-89); the rest of our data can be measured annually.