Inflation, Central Bank Independence and Corporatism: An Empirical Test

In this paper, controlling for several macroeconomic factors, we test the hypothesis that central bank independence is closely correlated with the level of social consensus and cooperation on income distribution. Using data from a panel of OECD countries over period 1972-2002, we find evidence in favour of this hypothesis. When one allows for the degree of social consensus and cooperation on income distribution, as in Tarantelli’s (1986) index of corporatism, the relationship between inflation and CBI weakens in the presence of indicators of corporatism. Interestingly, this relationship does not weaken if allowance is made for indicators of corporatism placing much greater weight on the centralisation of unions or of wage bargaining than on the degree of consensus.