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"The European Central Bank" published on by Oxford University Press.

Abstract This paper uses results of a questionnaire survey to look at how central bankers inthe Czech Republic, Hungary, Poland and Slovakia view various criteria of centralbank independence and compares their responses with central bankers in industrialcountries. Central bankers from both groups agree very strongly on the importanceof two pillars of central bank independence: goal independence and freedom toimplement these goals, together with a system of how credit is granted by a centralbank to a government that gives the central bank powers to determine terms andlimits the extent of such credit. Based on the responses, the paper also identifiessome weaknesses of the most frequently used indices of central bank independenceand makes recommendations on how to improve them.

Corruption at central banks induces distorted policies by generating a tendency to increase inflation. An inflation bias arises because the public distrusts central bank's benevolence, not only its commitments. We show that distrust among the public, measured by a high level of expected inflation, can have positive effects because it may sanction a conservative central banker, forcing him to lower realized inflation levels. Giving central banks a high level of independence will fail if this not only insulates central bankers from troublesome political interference but also provides them with the leeway necessary to carry out corrupt transactions.