Indeed, there is quite some evidence for a negative relationship between CBI and inflation (Eijffinger and De Haan (1996)). .
A general belief amongst many economists is that CBI stems from the thought that if a central bank were independent from its enforced political obligations then it would deliver lower and stable inflation. However, Buschanan and Wagner (1997) point out that even an independent bank may not be immune from political pressures and thus exhibit inflationary bias. One of the first empirical studies conducted on this matter by Bade and Parkin (1995) used data on 12 OECD (Organisation for Economic Cooperation and Development) countries, post Bretton Woods, and measured the CBI according to the influences over policies and finances of the central bank. The political influences wee based on the authorities power to appoint members to the board, the authority representation on the board who had the final policy authority. The financial influences were based on the authorities power to set salaries for the board and control the central bank's budget and allocate profits. Bade and Parkin found that "the degree of financial independence was not a significant determinant of inflation but policy independence was seen as an important determinant of inflation". This result occurred because of the large amount of political (goal) independence granted to Switzerland and Germany, which resulted in inflation rates much lower than the other countries in the test. They found no significant differences in inflation levels within the countries tested with a low degree of independence. This shows that central banks with high (full) independence have low inflation compared to countries operating with central banks with low (partial) independence that have higher inflation levels. .
Two indexes of CBI were created, one of which was based on political measures of independence and the other based on the economic measures of independence, by Grilli et al (1991).
