The ultimate determinants of central bank independence

18

also zero expectations.

Therefore, y is a vector of observed legal indices of central bank independence (AL,
GMTT, ES and LVAU), measured in deviation from their means

AL M

GMTT M

ESM

LVAU M

, and x is a vector of observed explanatory variables, being the non-accelerating inflation
rate of unemployment (NAIRU), the percentage of years of a left-wing government
(WLEFT), the variance of output growth (VPROD) and the compensation of employees as
share of GDP (SLOPE), measured in deviation from their means

NAIRU M

WLEFT M

VPROD M

SLOPE M

So, equations (4.3) and (4.4) become, respectively

AL M

GMTT M

ESM

LVAU M

(4.3’)

and

Furthermore, Φ and Ψ are defined as the covariance matrix of ξ and the variance of ζ,
respectively, and Θ_γ and Θ_δ as the true variance-covariance matrices of γ and δ, respecti-
vely. Then it follows from the above assumptions that the variance-covariance matrix Σ of

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