−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd FinExp
−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd GovExp
−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd FMExp
−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd CBExp
−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd CBCC
−4
−2
0
2
4
0.0
2.5
5.0
Years after ...
+1 sd CBI
cbi−c
cbi−3
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Change in
Inflation
Change in
Inflation
Figure
7: Effects of individuals and institutions on inflation. Change in inflation following a per-
manent 1 standard deviation increase in a career type, the career characteristics index (CBCC),
or central bank independence (CBI). Each solid line is a separate counterfactual; those in the
top row summarize model 1, while those in the bottom row show the implications of model 3.
When one experience score is increased, all other scores are reduced proportionately from their
means to maintain a sum of 1. Initial lags are set at mean observed inflation. All plots show
expected values as solid lines and mark 90% confidence intervals in gray. These intervals reflect
the cumulative estimation uncertainty produced by iterating the model through twenty periods.
In the final plot, the solid line marked cbi-3 refers to the average of three CBI indices, while
dashed line marked cbi-c refers to the CWN index alone.
substantially over time within countries and even more so across countries.
25
Overall, the median
member of the average central bank first shot upwards on the CBCC index, from -0.35 in 1973
to a high of -0.01 in 1988, then drifted back to -0.16 in 1993, before rising again to -0.05 in 2000.
Model 2 regresses logged inflation on CBCC, controlling for CBI. I obtain similar results
using either mean or median CBCC, and either the combined CBI index or just CWN’s time-
varying version. The plot in the center of the second row shows that a one standard deviation
increase in the CBCC of the median central banker preceeds a 1.4 point decline in inflation over
five years.
26
This result is highly significant, virtually identical to the effect of a one standard
deviation increase in CWN’s CBI index (1.5 points), and somewhat smaller than the effect of the
25
Examining monthly CBCC
med
data over 1973–2000, in the average country, the standard deviation over time
was 0.35, while for the average time period, the standard deviation across countries was 0.53. Including further
time periods (e.g., going back to 1950) not surprisingly raises the proportion of variance explained within countries.
26
The choice of equal weights for each component in CBCC is made for simplicity, but some plausible alterna-
tives produce substantively similar results. For example, if we give only half weight to the two more ambiguous
categories—FMExp and CBExp—the effect of one standard deviation higher CBCC is -1.1 points of inflation, with
a 90 percent confidence interval of -0.3 to -1.8.
29
Convention